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Operational Risk Management, 2nd Edition
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Operational Risk Management, 2nd Edition
by Philippa X. Girling
Operational Risk Management, 2nd Edition
Cover
Series Page
Title Page
Copyright
Dedication
Preface
Acknowledgments
CHAPTER 1: Definition and Drivers of Operational Risk
CHAPTER 2: The Regulatory Push
CHAPTER 3: The Operational Risk Framework
CHAPTER 4: Operational Risk Governance
CHAPTER 5: Culture and Awareness
CHAPTER 6: Policies and Procedures
CHAPTER 7: Internal Operational Risk Event Loss Data
CHAPTER 8: External Loss Data
CHAPTER 9: Key Risk Indicators
CHAPTER 10: Risk and Control Self-Assessments
CHAPTER 11: Scenario Analysis
CHAPTER 12: Capital Modeling
CHAPTER 13: Reporting
CHAPTER 14: Risk Appetite
CHAPTER 15: Reputational Risk and Operational Risk
CHAPTER 16: Operational Risk and Convergence
CHAPTER 17: Best Practices in Related Risk Management Activities
CHAPTER 18: Case Studies
Appendix: Answers to Review Questions
About the Author
About the Website
Index
End User License Agreement
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Operational Risk Management, 2nd Edition
Table of Contents
Cover
Series Page
Title Page
Copyright
Dedication
Preface
Acknowledgments
CHAPTER 1: Definition and Drivers of Operational Risk
THE DEFINITION OF OPERATIONAL RISK
2012 LONDON OLYMPICS: A CASE STUDY
OPERATIONAL RISK MANAGEMENT AND OPERATIONAL RISK MEASUREMENT
DRIVERS OF OPERATIONAL RISK MANAGEMENT
KEY POINTS
REVIEW QUESTIONS
NOTES
CHAPTER 2: The Regulatory Push
HISTORY OF THE BASEL ACCORDS
RULES OF THE ACCORDS
ADOPTION OF BASEL II IN EUROPE
ADOPTION OF BASEL II IN THE UNITED STATES
IMPACT OF THE FINANCIAL CRISIS
BASEL III
KEY POINTS
REVIEW QUESTIONS
NOTES
CHAPTER 3: The Operational Risk Framework
OVERVIEW OF THE OPERATIONAL RISK FRAMEWORK
THE FOUNDATIONS OF THE FRAMEWORK
THE FOUR DATA BUILDING BLOCKS
MEASUREMENT AND MODELING
REPORTING
RISK APPETITE
KEY POINTS
REVIEW QUESTIONS
NOTE
CHAPTER 4: Operational Risk Governance
ROLE OF GOVERNANCE
FIRST LINE OF DEFENSE
SECOND LINE OF DEFENSE
THIRD LINE OF DEFENSE
RISK COMMITTEES
KEY POINTS
REVIEW QUESTIONS
NOTES
CHAPTER 5: Culture and Awareness
WINNING OVER THE FIRM
MARKETING AND COMMUNICATION
AGILE
TRAINING
PLANNING
THE “USE TEST”
KEY POINTS
REVIEW QUESTION
NOTE
CHAPTER 6: Policies and Procedures
THE ROLE OF POLICIES, PROCEDURES, GUIDELINES, AND STANDARDS
BEST PRACTICES
OPERATIONAL RISK POLICY
SAMPLE OPERATIONAL RISK POLICY
SAMPLE STANDARDS, PROCEDURES, AND GUIDELINES
KEY POINTS
REVIEW QUESTION
NOTE
CHAPTER 7: Internal Operational Risk Event Loss Data
OPERATIONAL RISK EVENT DATA
INTERNAL LOSS DATA OR INTERNAL OPERATIONAL RISK EVENTS
RISK EVENT CATEGORIES
USING THE BASEL RISK CATEGORIES
MINIMUM OPERATIONAL RISK EVENT DATA STANDARDS
WHERE SHOULD OPERATIONAL RISK EVENT DATA BE COLLECTED?
WHEN SHOULD OPERATIONAL RISK EVENT DATA BE COLLECTED?
HOW SHOULD OPERATIONAL RISK EVENT DATA BE COLLECTED?
KEY POINTS
REVIEW QUESTIONS
NOTES
CHAPTER 8: External Loss Data
EXTERNAL OPERATIONAL RISK EVENT DATA
SOURCES OF EXTERNAL LOSS EVENT DATA
CHALLENGES OF EXTERNAL DATA
KEY POINTS
REVIEW QUESTION
NOTES
CHAPTER 9: Key Risk Indicators
KEY RISK INDICATORS
SELECTING KRIS
THRESHOLDS
KRI STANDARDS
KRI CHALLENGES
METRICS EXAMPLES
KEY POINTS
REVIEW QUESTION
NOTE
CHAPTER 10: Risk and Control Self-Assessments
THE ROLE OF ASSESSMENTS
RCSA METHODS
RCSA SCORING METHODS
RCSA BEST PRACTICES
KEY POINTS
REVIEW QUESTION
NOTE
CHAPTER 11: Scenario Analysis
ROLE OF SCENARIO ANALYSIS
SCENARIO ANALYSIS APPROACHES
SCENARIO ANALYSIS OUTPUT
KEY POINTS
REVIEW QUESTIONS
NOTES
CHAPTER 12: Capital Modeling
OPERATIONAL RISK CAPITAL
BASIC INDICATOR APPROACH
STANDARDIZED APPROACH
ADVANCED MEASUREMENT APPROACH
INSURANCE
FUTURE OF CAPITAL REQUIREMENTS: BASEL III
KEY POINTS
REVIEW QUESTIONS
NOTES
CHAPTER 13: Reporting
ROLE OF REPORTING
OPERATIONAL RISK EVENT REPORTING
RISK AND CONTROL SELF-ASSESSMENT REPORTING
KEY RISK INDICATOR REPORTING
SCENARIO ANALYSIS REPORTING
CAPITAL REPORTING
ACTION TRACKING REPORTING
A CONSOLIDATED VIEW
DASHBOARDS
KEY POINTS
REVIEW QUESTION
CHAPTER 14: Risk Appetite
THE ROLE OF RISK APPETITE
REGULATORY EXPECTATIONS
IMPLEMENTING A RISK APPETITE FRAMEWORK
MONITORING OPERATIONAL RISK APPETITE
RISK APPETITE TODAY
KEY POINTS
REVIEW QUESTION
NOTES
CHAPTER 15: Reputational Risk and Operational Risk
WHAT IS REPUTATIONAL RISK?
REPUTATIONAL IMPACT
REGULATORY OVERSIGHT OF REPUTATIONAL RISKS
REPUTATIONAL RISK MANAGEMENT FRAMEWORK
KEY POINTS
REVIEW QUESTION
NOTES
CHAPTER 16: Operational Risk and Convergence
OPERATIONAL RISK AS A CATALYST FOR CONVERGENCE
GOVERNANCE, RISK, AND COMPLIANCE (GRC)
CONVERGED OR GRC REPORTING
KEY POINTS
REVIEW QUESTION
NOTES
CHAPTER 17: Best Practices in Related Risk Management Activities
NEW-PRODUCT APPROVAL
SUPPLIER AND THIRD-PARTY RISK MANAGEMENT
LEGAL RISK MANAGEMENT
REGULATORY RISK MANAGEMENT
PEOPLE RISK MANAGEMENT
FRAUD RISK MANAGEMENT
TECHNOLOGY RISK MANAGEMENT
CLIMATE RISK
PANDEMIC PLANNING
STRATEGIC RISK
KEY POINTS
REVIEW QUESTION
NOTES
CHAPTER 18: Case Studies
JPMORGAN WHALE: RISKY OR FRISKY?
REVIEW QUESTIONS
NOTES
Appendix: Answers to Review Questions
CHAPTER 1
CHAPTER 2
CHAPTER 3
CHAPTER 4
CHAPTER 5
CHAPTER 6
CHAPTER 7
CHAPTER 8
CHAPTER 9
CHAPTER 10
CHAPTER 11
CHAPTER 12
CHAPTER 13
CHAPTER 14
CHAPTER 15
CHAPTER 16
CHAPTER 17
CHAPTER 18
NOTES
About the Author
About the Website
Index
End User License Agreement
List of Tables
Chapter 7
TABLE 7.1 Basel II Operational Risk Event Categories
TABLE 7.2 Internal Fraud Subcategories
TABLE 7.3 External Fraud Subcategories
TABLE 7.4 Employment Practices and Workplace Safety Subcategories
TABLE 7.5 Client, Products, and Business Practices Subcategories
TABLE 7.6 Damage to Physical Assets Subcategories
TABLE 7.7 Business Disruption and System Failures Subcategories
TABLE 7.8 Execution, Delivery, and Process Management Subcategories
TABLE 7.9 Level 1 and Level 2 Causes Taxonomy in ORX
TABLE 7.10 Basel II Business Line Categories
Chapter 8
TABLE 8.1 Number and Amount of Losses (in Euros) by Business Line and Risk C...
TABLE 8.2 The Percentage Contribution to Number of Events and Amount of Loss...
TABLE 8.3 Classification in IBM FIRST Risk Case Studies
Chapter 9
TABLE 9.1 Sample People Metrics
TABLE 9.2 Sample Compliance Metrics
TABLE 9.3 Samples of Technology and Infrastructure Metrics
TABLE 9.4 Sample Business Continuity Metrics
TABLE 9.5 Sample Client Metrics
TABLE 9.6 Sample Execution and Process Management Metrics
TABLE 9.7 Sample Financial Statement Metrics
Chapter 10
TABLE 10.1 Scoring Control Design and Performance
TABLE 10.2 A Risk Impact Scoring Scale That Includes Nonfinancial Impact Cat...
TABLE 10.3 Sample Scoring Method for Frequency or Probability
Chapter 11
TABLE 11.1 Sample Scenario Analysis Output
Chapter 12
TABLE 12.1 Example Capital Calculation Matrix
TABLE 12.2 Sample Scenario Analysis Output
TABLE 12.3 Definitions of the Business Indicator Component
Chapter 13
TABLE 13.1 Example Operational Risk Event Data Table
TABLE 13.2 Example Investment Banking Operational Risk Event Detail
TABLE 13.3 Example Operational Risk Event Data Cut by Risk Category
TABLE 13.4 Example of Integrated Action Tracking Reporting
TABLE 13.5 Consolidated View of Operational Risk Outputs to Produce a Risk P...
Chapter 14
TABLE 14.1 Impact Scoring Example
Chapter 15
TABLE 15.1 Possible Reputational Impact Scoring Method for RCSA
Appendix
TABLE A.1 IBM First Classification of Archegos Credit Suisse Event
TABLE A.2 ORX Classification of DNB Bank ASA Event
List of Illustrations
Chapter 1
FIGURE 1.1 Enterprise Risk Management Wheel
Chapter 2
FIGURE 2.1 Three Capital Calculation Approaches for the Treatment of Operati...
Chapter 3
FIGURE 3.1 Operational Risk Framework
Chapter 4
FIGURE 4.1 The Role of Governance in an Operational Risk Framework
FIGURE 4.2 Example Governance Structure Where Operational Risk Is Owned by t...
FIGURE 4.3 Example Reporting Structure Where Operational Risk Is Owned by th...
FIGURE 4.4 Example Reporting Structure Where Operational Risk Is Owned by th...
FIGURE 4.5 Operational Risk Team Reporting Structure
FIGURE 4.6 Operational Risk Coordinator Reporting Structure
FIGURE 4.7 Operational Risk Coordinator Matrix Reporting Structure
FIGURE 4.8 Embedded Independent Operational Risk Coordinator Reporting Struc...
FIGURE 4.9 A Sample Risk Committee Structure
Chapter 5
FIGURE 5.1 The Role of Culture and Awareness in an Operational Risk Framewor...
FIGURE 5.2 Sample Project Milestones for an Operational Risk Implementation ...
Chapter 6
FIGURE 6.1 Policies and Procedures in an Operational Risk Framework
FIGURE 6.2 Policy Documentation Hierarchy
FIGURE 6.3 Sample Operational Risk Policy
Chapter 7
FIGURE 7.1 Internal Loss Data in an Operational Risk Framework
FIGURE 7.2 Loss Data Marketing Poster
FIGURE 7.3 Simple Operational Risk Event Workflow for the Initial Reporter o...
Chapter 8
FIGURE 8.1 The Role of External Loss Data in the Operational Risk Framework...
FIGURE 8.2 Dollar Value Losses between 2015 and 2020, by Risk Category for A...
FIGURE 8.3 ORX Classification of the Société Générale Event
Chapter 9
FIGURE 9.1 Key Risk Indicators in the Operational Risk Framework
Chapter 10
FIGURE 10.1 Risk and Control Self-Assessment in the Operational Risk Framewo...
FIGURE 10.2 Control Effectiveness Scoring Matrix
FIGURE 10.3 Risk Severity Scoring Matrix
Chapter 11
FIGURE 11.1 Scenario Analysis in the Operational Risk Framework
Chapter 12
FIGURE 12.1 The Three Basel II Operational Risk Capital Methods
FIGURE 12.2 The Role of Capital Modeling in the Operational Risk Framework
FIGURE 12.3 Comparing Three Different Poisson Distributions
FIGURE 12.4 The Severity Probability Distribution
FIGURE 12.5 Using Monte Carlo Simulation
Chapter 13
FIGURE 13.1 The Role of Reporting in the Operational Risk Framework
FIGURE 13.2 Trending Loss Amount vs. Number of Events
FIGURE 13.3 Fictional Action Open Items by Risk Category, Pie Chart
FIGURE 13.4 Fictional Late Action Items by Risk Category, Pie Chart
Chapter 14
FIGURE 14.1 The Role of Risk Appetite in the Operational Risk Framework
FIGURE 14.2 The Relationship between Risk Capacity, Appetite, Tolerance, and...
FIGURE 14.3 FSA Findings on How ORA Can Be Defined or Articulated at Several...
FIGURE 14.4 Risk Appetite Governance
FIGURE 14.5 Operational Risk Appetite Framework
FIGURE 14.6 RCSA Risk Severity Scoring Matrix
Chapter 15
FIGURE 15.1 The Enterprise Risk Management Wheel
FIGURE 15.2 The Operational Risk Framework Structure Can Simply Be Renamed a...
Chapter 16
FIGURE 16.1 Map of Existing Assessment Activities against Operational Risk C...
FIGURE 16.2 A Nonconverged Approach to Risk Assessment
FIGURE 16.3 Leveraging Underlying Assessments in RCSA
FIGURE 16.4 Simplified Communication Model with Expanded RCSA
FIGURE 16.5 Communication Flows Using an Integrated Risk Assessment Tool
FIGURE 16.6 A Nonconverged Approach to Metrics Results in Multiple Data Requ...
FIGURE 16.7 A Converged Approach to Metrics Data Warehousing
Chapter 18
FIGURE 18.1 JPM Share Price and Trade Volume
FIGURE 18.2 ORX Classification of JPMorgan Whale Event
FIGURE 18.3 FIRST Classification of JPMorgan Whale Event
FIGURE 18.4 ORX Case File on UBS Trading Scandal
FIGURE 18.5 First Summary of UBS Trading Scandal
Appendix
FIGURE A.1 ORX Classification of Knight Capital Event
Guide
Cover Page
Table of Contents
Series Page
Title Page
Copyright
Dedication
Preface
Acknowledgments
Begin Reading
Appendix: Answers to Review Questions
About the Author
About the Website
Index
End User License Agreement
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