The purpose of this seminar is to give you a thorough introduction to operational risk and a good and practical understanding of how the various types of operational risk can be measured and managed.
We will start with an overall definition of "Operational Risk" and will discuss why this type of risk is becoming a more important issue.
We will then take a closer look at the various types of risks that are categorized as operational risks, including people risk (fraud, unauthorized trading, mistakes), technology risk (including settlement risk), legal risk (i.e. when using swaps or credit derivatives), model risk, and accounting and tax risks.
Next, we will explain how operational risk can be quantified using "Basic Indicators", “Betas”, "Value Chain Analysis", “Principal-Agent Analysis” and more sophisticated, statistical techniques. We will also explain how measures for operational risk are brought into the calculation of risk capital and how capital is allocated optimally across business units.
After that, we will explain the role of operational risk in Basel III. We will explain how operational risk is quantified according to the proposal, and we will illustrate the possible impact on the capital ratios of banks. We will give illustrative examples of the “Basic Indicator Approach”, the “Standardized Approach” and the “Advanced Measurement Approach” (AMA).
Finally, we will present and discuss possible ways of managing operational risk, including "Business Process Reengineering", using insurance, incentives, and sophisticated derivatives and structured products with "embedded" insurance features. We also discuss how operational risk management can be integrated into a comprehensive “Enterprise Risk Management” framework and how you can establish a disciplined process to lay the foundation for a good risk management culture and to produce the most reliable results.