The Credit Crisis and Operational Risk - Implications for Practitioners and Regulators
Andreas (Andy) Jobst
International Monetary Fund (IMF) - Monetary and Capital Markets Department (MCM)
May 24, 2010
Journal of Operational Risk, Vol. 5, No. 2, Summer 2010
The fallout from the financial crisis has illustrated that many sources of systemic risk were triggered or at least propagated by vulnerabilities in operational risk management (ORM), which has not kept pace with financial innovation, and an excessive focus of regulation on prudential requirements without recognition of substantial operational risk in market-based liquidity transformation. At the same time, institutions are at different stages of systems development and show considerable dispersion in ORM practices while falling short of integrating operational risk as a horizontal process. This is troubling in light of continued regulatory shortcomings. The following article highlights the increased importance of operational risk amid greater systemic risk concerns and reviews the current situation of ORM. In conclusion, it provides some suggestions on the future development ORM – both from an organizational and industry perspective.
Number of Pages in PDF File: 21
Keywords: operational risk, credit crisis, operational risk regulation, systemic risk, systemic liquidity, market infrastructure, re-hypothetication, wholesale funding
JEL Classification: G18, G21Accepted Paper Series
Date posted: October 20, 2009 ; Last revised: June 8, 2010
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