One of the biggest talking points in the Basel document is
the proposed charge for operational risk. This broad concept is
usually defined as the risk of losses stemming from processes,
systems, external events and human failure. That seems to cover
just about every loss known to humanity, so it is no easy matter to
measure - let alone manage - operational risk.
But perhaps surprisingly, a number of banks have already put into
place methods for quantifying this risk and set aside capital to
cover it. "Some banks are allocating an element of capital for
operational risk," says PricewaterhouseCoopers partner John
Tattersall. "But their systems for measuring losses and
anticipating amounts at risk tend not to be very robust. Devising a
system for monitoring and measuring operational risk that is
subject to external review will be quite a challenge."
The proposals explain how the basic operational risk charge...
