Operational Risk Management

PHILIPPA GIRLING, PhD, is Chief Risk Officer at Varo Bank N.A. She has over 25 years of experience in global financial services and is a recognized risk management leader who has authored two popular operational risk textbooks. She is a sought-after public speaker on enterprise risk management and digital transformation and was named as one of the decade's "Top Fifty Faces of Operational Risk" in 2006.

Identify, assess, and mitigate operational risk with this practical and authoritative guide
 
In the newly revised second edition of Operational Risk Management: A Complete Guide for Banking and Fintech, accomplished risk executive and expert Philippa Girling delivers an insightful and practical exploration of operational risk in organizations of all sizes. She offers risk professionals and executives the tools, strategies, and best practices they need to mitigate and overcome ever-present operational risk challenges that impact business in all industries.
 
This latest edition includes:
* Insight into how operational risk can be effectively managed and measured in today's digital banking age.
* Updates on the latest regulatory guidance on operational risk management requirements in all aspects of the operational risk framework.
* Updates on the new Basel II capital modeling methodology for operational risk.
* New explorations of operational risk events in recent years including the impact of the global Covid-19 pandemic.
* Updated case studies including large events at Wells Fargo, Credit Suisse and Archegos Capital Management.
 
Ideal for executives, managers, and business leaders, Operational Risk Management is also the perfect resource for risk and compliance professionals who wish to refine their abilities to identify, assess, mitigate, and control operational risk.

Preface xiii
 
Acknowledgments xv
 
Chapter 1 Definition and Drivers of Operational Risk 1
 
The Definition of Operational Risk 1
 
2012 London Olympics: A Case Study 5
 
Operational Risk Management and Operational Risk Measurement 9
 
Drivers of Operational Risk Management 13
 
Key Points 14
 
Review Questions 14
 
Notes 15
 
Chapter 2 The Regulatory Push 17
 
History of the Basel Accords 17
 
Rules of the Accords 22
 
Adoption of Basel II in Europe 27
 
Adoption of Basel II in the United States 27
 
Impact of the Financial Crisis 29
 
Basel III 34
 
Key Points 36
 
Review Questions 36
 
Notes 37
 
Chapter 3 The Operational Risk Framework 39
 
Overview of the Operational Risk Framework 39
 
The Foundations of the Framework 40
 
The Four Data Building Blocks 42
 
Measurement and Modeling 44
 
Reporting 44
 
Risk Appetite 45
 
Key Points 45
 
Review Questions 46
 
Note 46
 
Chapter 4 Operational Risk Governance 47
 
Role of Governance 47
 
First Line of Defense 50
 
Second Line of Defense 51
 
Third Line of Defense 63
 
Risk Committees 66
 
Key Points 68
 
Review Questions 69
 
Notes 69
 
Chapter 5 Culture and Awareness 71
 
Winning over the Firm 71
 
Marketing and Communication 72
 
Agile 73
 
Training 75
 
Planning 76
 
The "Use Test" 82
 
Key Points 84
 
Review Question 84
 
Note 84
 
Chapter 6 Policies and Procedures 85
 
The Role of Policies, Procedures, Guidelines, and Standards 85
 
Best Practices 88
 
Operational Risk Policy 88
 
Sample Operational Risk Policy 89
 
Sample Standards, Procedures, and Guidelines 95
 
Key Points 97
 
Review Question 97
 
Note 97
 
Chapter 7 Internal Operational Risk Event Loss Data 99
 
Operational Risk Event Data 99
 
Internal Loss Data or Internal Operational Risk Events 100
 
Risk Event Categories 103
 
Using the Basel Risk Categories 112
 
Minimum Operational Risk Event Data Standards 113
 
Where Should Operational Risk Event Data Be Collected? 129
 
When Should Operational Risk Event Data Be Collected? 130
 
How Should Operational Risk Event Data Be Collected? 130
 
Key Points 132
 
Review Questions 132
 
Notes 134
 
Chapter 8 External Loss Data 135
 
External Operational Risk Event Data 135
 
Sources of External Loss Event Data 136
 
Challenges of External Data 139
 
Key Points 147
 
Review Question 148
 
Notes 148
 
Chapter 9 Key Risk Indicators 149
 
Key Risk Indicators 149
 
Selecting Kris 153
 
Thresholds 154
 
Kri Standards 154
 
Kri Challenges 155
 
Metrics Examples 155
 
Key Points 161
 
Review Question 161
 
Note 161
 
Chapter 10 Risk and Control Self-Assessments 163
 
The Role of Assessments 163
 
RCSA Methods 166
 
RCSA Scoring Methods 169
 
RCSA Best Practices 173
 
Key Points 178
 
Review Question 179
 
Note 179
 
Chapter 11 Scenario Analysis 181
 
Role of Scenario Analysis 181
 
Scenario Analysis Approaches 183
 
Scenario Analysis Output 192
 
Key Points 195
 
Review Questions 195