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Chapter 8- Identification of Operational Risk (2) Operational risk level 1…

- - - - clients, products, business practice
      - damage to physical assets
      - employment practice and workplace safety
      - business disruption and system failure
      - 2.external fraud
      - execution, delivery and process management
      - 1.internal fraud
  - - - frequency of occurrence of an operational risk event
    - - financial impact on the bank is an operational risk event occurs
- - - - business lines
      - event types
  - - - gross operational loss exposure is the gross amount of loss that the bank incurred before recoveries
      - net operational loss exposure is the net amount of loss that the bank incurred after recoveries from clients, insurance or other sources
    - - estimating operational loss amount
        
        replacement value
        
        cost of replacing the asset at the current time
        
        market value
        
        the amt that could be received in selling an asset in an orderly transaction between market participants
        
        book value
        
        the value of the security or asset in the bank's balance sheet
    - - date of occurrence(ideal), discovery and accounting
      - occurrence-when the op loss event happened
        discovery - ops loss is discovered
        accounting - bank is required to recognize losses for accounting purposes
    - - allocation of internal operational loss event arising from a single ops risk event that multiple business lines
    - - allocation mechanism
        
        alternative 1
        
        allocate the entire ops loss to the business line for which the impact is the greatest
        
        alternative 2
        
        allocate the loss on a pro rate basis across the affected business lines
- - - - provides participating institutions with external information pertaining to their respective risk management practice.
    - - deals with ops risk data-information on losses due to failed people, processes, systems or external events.
        provide a quality-controlled database to improve the member's risk measurement and modelling skills.
    - - operational riskdata exchange association
        
        non profit industry association dedicated to advancing the measurement and management of ops risk in the global financial services industry
        
        founded in 2012 with the primary objective of creating a platform for the secure and anonymized exchange of high quality ops risk loss data
- - - - information technology
      - finance and accounting
      - contract functions
      - back-office processing and administration