Measuring and Managing Operational Risk: An Integrated Approach

ISBN-13: 9783319694092 / Angielski / Twarda / 2018 / 211 str.

Paola Leone; Pasqualina Porretta; Mario Vellella

Opis

This book covers Operational Risk Management (ORM), in the current context, and its new role in the risk management field.

Spis treści

Chapter 1-Introduction

The first chapter presents the main topic of the work, defines the objectives of the different chapter and the main argument of the chapters. It explains the integrated risk approach that the authors use for the operational risk measurement and management and presents a logic scheme to help reader to better understand the different elements of Operational Risk Management. In the chapter authors also presents the definition of operational risk .

Chapter 2.Operational Risk Management: regulatory framework and operational impact

Banks must have an independent Operational Risk Management function that is responsible for the definition of policies and procedures concerning the management and control of operational risk, the implementation of methodologies for the measurement and reporting of the company system, elaboration of strategies to identify, measure, monitor and control operational risk. The internal measurement system must be

closely integrated into the daily management process of operational risk of the bank; management processes and operational risk measurement system, shall be subject to periodic review by internal and / or external auditors. In this perspective this chapter aims to analyses:

·         the regulatory framework on operational capital requirement;

·         the regulatory view on Operational Risk Management;

·         The Supervisory Review Process dedicated to operational risk.

This chapter also try to propose an integrated approach to define, manage, monitor and report operational losses together with capital planning, ICAAP (Internal Capital Adequacy Assessment Process), RAF (Risk Appetite Framewok) and risk culture of financial intermediaries;

Chapter 3-Operational risk measurement: literature review

Operational measurement is not the fundamental moment of operational Risk management but it is an important phase because it defines the efficiency of the operational risk management process. In this perspective,  this chapter describes the different method used to measure operational risk. The need to measure operational risk comes from the capital regulatory framework, which require banks to allocate an adequate amount of capital to cover their operational risk. In theory, this amount of capital should correspond to the maximum loss incurred due to operational risk in the bank, with a high probability (99%) in a given holding period (for instance, one year). Therefore, it is basically a “Value at Risk” (VAR). The question focused in the chapter is  how to compute this VAR or better which are the “independent” measurement methods: those that are not derived from a decision of the regulator, or more precisely those that fall in the category of  “advanced methods” of the Basel committee. Loss distribution approach (LDA) is the most popular method to calculate capital charge starting from quantitative source (integration of internal/external losses and scenario data). The methodology to analyze quantitative source is very complex but well defined and there is a large number of papers and articles that discuss various quantitative aspects and the different methodologies.

Chapter 4-Integrated risk Measurement Approach. A case study

This chapter aims to provide an overview of the main components of the measurement framework for operational risk developed by a financial intermediaries for which operational risk is more important. This methodology integrates an historical analysis and a  scenario analysis. The chapter describes the loss data collection, the assumption, the statistical tools used in the model described. It also describes the methods used to integrate the expected loss and the unexpected loss derived from the two different analysis; Produces a comparative analysis between SMA model (Standard Measurement Approach-) and an Advanced Measurement Approach; 2) a risk factor sensitivity analysis of the two approaches; 3) advantages and disadvantages framework which could inspire future regulatory developments.

Chapter 5- Almost conclusive thoughts: planning mitigation action

Operational Risk Management involves an array of methods and approach that essentially serve two purpose: reduction of average losses and avoidance of catastrophic. Some of these methods aim at reducing the magnitude of losses, some of avoiding loss events, some at both. In this perspective, in the light of main  results of the methodologies applied, the chapter  propose:

·         a comparative analysis between SMA model (Standard Measurement Approach-) and  an Advanced Measurement Approach;

·         a risk fact

or sensitivity analysis of the two approaches

and tries to underline advantages and disadvantages of this new regulatory approach in the field of Single Supervisory Mechanism regulation.

In this perspective, in the light of main  results of the comparative analysis  we try to define the impact of the new regulatory approach on financial intermediaries in an integrated risk perspective.

O autorze

Paola Leone is Professor of Banking and Finance at the Sapienza University of Rome, Italy, where she teaches Risk Management. Her main research interests are banking, capital markets, risk management, mutual guarantee institutions, Bank Recovery and Resolution Directive (BRRD).

Pasqualina Porretta is Associate Professor in Banking and Finance at Sapienza University of Rome, Italy, where she teaches Risk Management in bank and insurance and derivatives. Her main research interests are risk measurement and management, capital regulatory framework, financial derivatives, credit guarantee institutions and microcredit.

Mario Vellella is a Risk Manager with more than 10 years’ distinguished experience in operational risk management within Poste Italiane, BancoPosta, Rome, Italy.  His specific research interest areas are enterprise risk Management, process analysis, risk mitigation, risk mapping and evaluation for firm operating in different sectors (financial or non-financial sectors).

Blurb

This book covers Operational Risk Management (ORM), in the current context, and its new role in the risk management field. The concept of operational risk is subject to a wide discussion also in the field of ORM’s literature, which has increased throughout the years. By analyzing different methodologies that try to integrate qualitative and quantitative data or different measurement approaches, the authors explore the methodological framework, the assumptions, statistical tool, and the main results of an operational risk model projected by intermediaries.  A guide for academics and students, the book also discusses the avenue of mitigation acts, suggested by the main results of the methodologies applied. The book will appeal to students, academics, and financial supervisory and regulatory authorities.