What does Basel 2 say about operational risk?
Definition. The Basel Committee defines operational risk in Basel II and Basel III as: The risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, but excludes strategic and reputational risk.
Which risks are categorized as operational risk under Basel II?
Operational risk in Basel 2
- Internal loss data (specific to the bank)
- External loss data (transversal databases for the whole profession)
- Analysis of potential event scenarios.
- Business environment and internal control factors.
What are the 4 main types of operational risk?
There are five categories of operational risk: people risk, process risk, systems risk, external events risk, and legal and compliance risk.
What is capital charge for operational risk?
The Basel framework provides three approaches for the measurement of the capital charge for operational risk. The simplest is the Basic Indicator Approach (BIA), by which the capital charge is calculated as a percentage (alpha) of Gross Income (GI), a proxy for operational risk exposure.
What are the seven Basel II risk categories?
Theft and Fraud Fraud / credit fraud / worthless deposits Theft / extortion / embezzlement / robbery Misappropriation of assets Malicious destruction of assets Forgery Check kiting Smuggling Account take-over / impersonation / etc.
How do you mitigate operational risk?
This should allow you to reduce the impact of the losses that your business could incur as a direct result of risk.
- 4 Steps – How To Reduce Operational Risk:
- Step 1: Managing Equipment Failures.
- Step 2: Keep Strong Business to Business Relationships.
- Step 3: Having Adequate Insurance.
- Step 4: Know the Regulations.
What are examples of operational risks?
What Are Examples of Operational Risk?
- Employee conduct and employee error.
- Breach of private data resulting from cybersecurity attacks.
- Technology risks tied to automation, robotics, and artificial intelligence.
- Business processes and controls.
- Physical events that can disrupt a business, such as natural catastrophes.
What are three examples of operational risk?
What is operational risk Basel?
As part of the revised Basel framework,1 the Basel Committee on Banking Supervision set forth the following definition: Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events.
What is operational risk as per Basel?
Operational risk has been defined by the Basel Committee on Banking Supervision1 as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, but excludes strategic and reputational risk.
What does operational risk include?
Operational risk is the risk of loss resulting from ineffective or failed internal processes, people, systems, or external events that can disrupt the flow of business operations. The losses can be directly or indirectly financial.
What are operational risk factors?
Operational risk is the risk of losses caused by flawed or failed processes, policies, systems or events that disrupt business operations. Employee errors, criminal activity such as fraud, and physical events are among the factors that can trigger operational risk.