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ERM frameworks [18]

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Bullet points include: Defined in Basel II as: “the risk of losses resulting from inadequate or failed internal processes/people/systems or from external events”, includes legal risk, fraud, IT failures, transaction settlement errors, litigation, flooding, fire, terrorism, excludes strategic risk, reputational risk, bad M&A decisions / business launches. Operational risk generally seen as having no upside, only downside. Difficult to quantify – lack of operational loss data (esp. of large adverse outcomes, ‘tail’ events). Depends on internal characteristics of bank, e.g. culture, processes. Sophistication of modelling varies considerably between banks

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