Advancing op risk management using Japanese banking experience

Junji Hiwatashi and Hiroshi Ashida of the Bank of Japan outline a practical framework for operational risk management, derived from research and experiences in Japan's financial community.

Japanese banks used to control operational risk with qualitative risk management, including checklists and operations manuals. It was thought that measuring operational risk was very difficult, since it covered various risks such as process risk, system risk, legal risk and others. In the past, there were some Japanese banks that defined operational risk as a non-measurable risk.

In the past few years, however, most large Japanese banks have sought to enhance their operational risk management