Operational Risk: A Practitioner's View

Journal of Risk, Vol. 5, No. 3, pp. 1-16, 2003

15 Pages Posted: 18 Nov 2002 Last revised: 15 Feb 2011

Paolo Vanini

University of Basel

Silvan Ebnöther

Zurich Cantonal Bank

Pierre Antolinez-Fehr

Zurich Cantonal Bank

Alexander McNeil

ETH Zürich - Department of Mathematics

Multiple version iconThere are 2 versions of this paper

Date Written: October 11, 2002

Abstract

The Basel Committee on Banking Supervision ("the Committee") released a consultative document that included a regulatory capital charge for operational risk. Since the release of the document, the complexity of the concept of "operational risk" has led to vigorous and recurring discussions. We show that for a production unit of a bank with well-defined workflows operational risk can be unambiguously defined and modelled. The results of this modelling exercise are relevant for the implementation of a risk management framework, and the pertinent risk factors can be identified. We emphasize that only a small share of all workflows make a significant contribution to the resulting VaR. This result is quite robust under stress testing. Since the definition and maintenance of processes is very costly, this last result is of major practical importance. Finally, the approach allows us to distinguish features of quality and risk management respectively.

Keywords: Operational Risk, Risk Management, VaR

JEL Classification: C19, C69, G18, G21

Suggested Citation

Vanini, Paolo and Ebnöther, Silvan and Antolinez-Fehr, Pierre and McNeil, Alexander, Operational Risk: A Practitioner's View (October 11, 2002). Journal of Risk, Vol. 5, No. 3, pp. 1-16, 2003. Available at SSRN: https://ssrn.com/abstract=339300

Paolo Vanini (Contact Author)

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

Silvan Ebnöther

Zurich Cantonal Bank ( email )

Josefstrasse 222
CH-8000 Zurich
Switzerland

Pierre Antolinez-Fehr

Zurich Cantonal Bank ( email )

Neue Hard 9
Corporate Risk Control
CH-8000 Zurich
Switzerland
+41 1 275 70 17 (Phone)
+41 1 272 19 39 (Fax)

Alexander McNeil

ETH Zürich - Department of Mathematics ( email )

ETH Zentrum HG-F 42.1
Raemistr. 101
CH-8092 Zurich, 8092
Switzerland
+41 1 632 61 62 (Phone)
+41 1 632 10 85 (Fax)

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