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Banks face risky business of Basle

Operational risk is not new – it’s a concept that banks have been struggling with for years with varying degrees of success. But setting aside capital against the risk of loss from human error, systems failure, or fraud is new, and of growing concern to the industry. With the Basle Accord’s capital requirements coming into effect in January 2005, banks and other financial institutions are having to face operational risk issues with a new sense of urgency. In the following roundtable discussion, brought together a number of professionals with different operational risk challenges to discuss the questions they face and the business implications of the Basle Accord. IBM’s Keith Saxton moderated

Keith Saxton

Keith Saxton: We know operational risks are growing rapidly - those related to human mistakes, fraud, and legal and regulatory issues being the most common - and I think September 11 has heightened the real focus on this issue. However, designing and implementing an effective enterprise-wide risk management and control system is one of the most difficult issues facing markets and banks today. What does it mean for the balance sheets of both small and large banks and how can they manage the effects of the Basle Accord?

Jeremy Quick: We are concerned. That's not to say we are against operational risk at all - we know that's the way firms earn money - we are anxious to ensure that firms know what sort of operational risk they are taking on. We also want to ensure they are comfortable that the level of operational risk that they take on can be handled both in terms of systems controls and also in terms of solvency.

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