Conclusions

Michael Grimwade

LESSONS LEARNT

The scope of operational risk ranges from day-to-day losses to large idiosyncratic events. Operational risk can also generate industry-wide losses, and it was these that were most prevalent during the global financial crisis. The analysis of case studies of these losses in the first part of this book highlighted that many of these losses arose as a result of a combination of:

• • banks providing services, in return for fees, to customers and investors that often transferred to them market and credit risks;
• • the global financial crisis, which led to those customers and investors suffering losses as a consequence of either rising credit defaults or market turmoil or falling interest rates; and
• • misconduct by the firms, which essentially granted their customers and investors an option to sue if they suffered loss (misconduct by firms is the financial equivalent of the Philosophers Stone, ie, turning customers’ and investors’ market and credit risk losses into operational risk losses suffered by the banks).

The common failings within banks that led to these losses included poorly defined policies and procedures, inadequate