Operational Risk Modelling and Management

Introduction to Operational Risk
Why Regulate Banks?
Additional Supervision
The Basel Regulatory Effort
Risk and Capital
What Is Operational Risk?
Economic Capital for Operational Risk
Operational Risk under Basel 2
Role of Insurance
Regulation after the Crisis

The Problem Context
General Remarks
The Data Problem
The Dependency Problem
The Insurance Problem
The Mapping Problem
The Management Problem
Strategic Risks of a Bank
AMA Standards
The Knowledge Problem
Probability, Causality and Other Primitives

The Modelling Approach
Simulation and the Monte Carlo Method
General Model Structure
Data Requirements
Data Modelling and Distributions
Run-Through Example: Quantitative Impact Study Data
Correlation of Losses
Risk Measures and Allocation
Insurance Modelling and Mitigation
Mapping Events to Insurance Policies
Mapping Events to Lines of Business
Calculating the Economic Capital
Results of the Run-Through Example
Summary and Conclusion

Managing Operational Risk
Management and Organisation
Environment
Culture
Operational Risk Framework
Operational Risk Structure
Operational Risk Process
Business Environment and Internal Control Factors
Scenario Analysis
Optimising the Insurance Programme
Audit, Reporting and Disclosure of Operational Risk
Risk Management versus Internal Control
Summary and Conclusion

Conclusions

Appendix

Bibliography

Index