Hr Professional

Risk management: Identification, assessment, monitoring and mitigation/control

The fourth principle states that banks should identify and assess the operational risk inherent

in all material products, activities, processes and systems. Banks should also ensure

that before new products, activities, processes and systems are introduced or undertaken,

the operational risk inherent in them is subject to adequate assessment procedures.

Amongst the possible tools used by banks for identifying and assessing operational

risk are:

• Self- or risk-assessment. A bank assesses its operations and activities against a menu

of potential operational risk vulnerabilities. This process is internally driven and often

incorporates checklists and/or workshops to identify the strengths and weaknesses of the

operational risk environment. Scorecards, for example, provide a means of translating

qualitative assessments into quantitative metrics that give a relative ranking of different

types of operational risk exposures. Some scores may relate to risks unique to a specific

business line while others may rank risks that cut across business lines. Scores may

address inherent risks, as well as the controls to mitigate them. In addition, scorecards

may be used by banks to allocate economic capital to business lines in relation to

performance in managing and controlling various aspects of operational risk.

• Risk mapping. In this process, various business units, organisational functions or process

flows are mapped by risk type. This exercise can reveal areas of weakness and help

prioritise subsequent management action.

• Risk indicators. Risk indicators are statistics and/or metrics, often financial, which can

provide insight into a bank’s risk position. These indicators tend to be reviewed on

a periodic basis (such as monthly or quarterly) to alert banks to changes that may be

indicative of risk concerns. Such indicators may include the number of failed trades,

staff turnover rates and the frequency and/or severity of errors and omissions.

• Measurement. Some firms have begun to quantify their exposure to operational risk

using a variety of approaches. For example, data on a bank’s historical loss experience

could provide meaningful information for assessing the bank’s exposure to

operational risk.

From India , Nasik
Hi shyamali...
Your post was very informative. Can u please explain me about the types of risks that were identified by basel II ? especially about the market risk in bank and the practices that are followed by banks in India for risk management.

From India , Coimbatore
good piece of information shyamali.. :).. it will be more interesting & usefull to people like me, if u can post full fledged report on this Risk Mgt.
From India , Namakkal
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