Operational risk
WHAT IS THIS? Operational risks are those arising from people, processes and systems – the biggest form of exposure for many industries, but one that was neglected by financial firms until the collapse of Barings Bank in 1995. It was added to the Basel capital framework in 2004, but attempts to model operational risk were dealt a heavy blow by the huge, unforeseen losses suffered by banks in the aftermath of the financial crisis.
Regulators pushing CCPs and exchanges on op risk
Op Risk Benchmarking: In latest batch of data, FMIs report growing scrutiny, plus watchdog asks for stress tests, monitoring and more
Climate risk overlays unnerve model-validation teams
Risk Live: Model risk managers fear they lack the data or skills to properly test expert judgement
ABN Amro ditches op risk modelling
Dutch lender latest EU bank to switch to the standardised approach ahead of SMA introduction in 2025
Clearing members combing rule books after LME lawsuit win
Industry debates whether other CCPs and exchanges would cancel trades if faced with similar crisis
Op risk data: TD Bank takes $95m pill for pyramid scheme
Also: GE settles after juicing asset manager sale; keeping conflicts of interest quiet. Data by ORX News
Europe looks to US for guidance as market braces for T+1
Operations professionals in Europe look across the pond for lessons in managing shorter settlement cycles
Credible value-at-risk
This paper proposes a means to determine whether a a calculated VaR is "too large" and give a definition of this term within the context.
How does fintech affect the revenue and risk of commercial banks? Evidence from China
The authors use data from Chinese commercial banks to investigate relationships between the development and adoption of fintech and the revenue and risk of commercial banks.
A renewed focus on operational risk: mitigating new risks while deriving a competitive advantage
Regulators are preparing to introduce sweeping capital rule alterations with relatively short implementation periods. Firms that address operational risks in a holistic and integrated manner will realise risk and compliance benefits, and boost strategic…
New UK fraud rules intensify global focus on third-party risk
Firms will have responsibility to ensure “associated” persons are taking steps to prevent fraud
Opra outages cause consternation in options markets
UBS warned clients they were looking at “bad data” on options screens
CME’s Span 2 margin model generates systems headaches
Market participants welcome smarter margin requirements, but not the computational workload
Estimating the correlation between operational risk loss categories over different time horizons
The authors propose and demonstrate the value of a model with which mathematical techniques can be applied to analytically calculate means, variances and covariances more accurately than Monte Carlo simulations.
Op risk data: Cigna catches a $172m cold over fake diagnoses
Also: Shinhan Bank America breaks AML rules; more greenwashing grime at DWS. Data by ORX news
Can CCPs provide a port in a storm for securities lending?
Basel III, T+1 and EquiLend scandal all incentivise clearing, but also disintermediation
JP Morgan, BofA say Basel III plan could wipe out capital cushion
Banks forecast $82 billion cumulative hike in capital requirements from Fed proposals
Banks grapple with concentration risk from fourth parties
Risk Live: Third-party vendors are increasingly reliant on the same subcontractors
Regulator warns against ‘happy endings’ for op risk wargames
Risk Live: Bankers say third parties should also be at the table when simulating crisis scenarios
Barking bank watchdogs don’t need to bite
Regional banks add staff, layer up controls to mitigate compliance risks
Execution & process errors: banks try to get beyond blunderdome
Mistakes mean more data for reporting, models and scenarios. But do banks learn from them?
On cyber risk, regionals have no appetite for disruption
Smaller lenders fear outages and other IT bungles, as do regulators. So, what are they doing about it?
Maximum insecurity: banks tool up to meet cyber threat
Lenders confront “existential” threat of data leaks with bigger teams and better controls
Share of op risk modelling falls at European banks
Less than half of analysed dealers rely on the AMA, as introduction of new standardised approach looms large
Op Risk Benchmarking, round II: helping lenders borrow
From KRIs to four-eye checks, how do op risk frameworks at regional and domestic banks stack up?