Operational Risk: A Practitioner's View

Journal of Risk, Vol. 5, No. 3, Spring 2003

Posted: 18 Jun 2003

See all articles by Paolo Vanini

Paolo Vanini

University of Basel

Pierre Antolinez-Fehr

Zurich Cantonal Bank

Silvan Ebnöther

Zurich Cantonal Bank

Alexander McNeil

ETH Zürich - Department of Mathematics

Multiple version iconThere are 2 versions of this paper

Abstract

We show that for a production unit of a bank with well-defined workflows operational risk can be unambiguously defined and quantitatively modelled. The results of this modelling exercise are relevant for the implementation of a risk management framework: It turns out, that only a small share of all workflows make a significant contribution to the resulting value at risk or expected shortfall. 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. Second, the approach allows us to distinguish features of quality and risk management respectively, using the same modelling approach. Finally, the methodology shows that not all risk factors which were considered in the self-assessment procedure are matter: Two of them are completely irrelevant and the importance of the other factors depends on the management objectives: Whether the concern is on high frequency - low severity events, i.e. quality management, or on low frequency - high severity events, i.e. operational risk management, determines the significance of the risk factors.

JEL Classification: C19, C69, G18, G21

Suggested Citation

Vanini, Paolo and Antolinez-Fehr, Pierre and Ebnöther, Silvan and McNeil, Alexander, Operational Risk: A Practitioner's View. Journal of Risk, Vol. 5, No. 3, Spring 2003. Available at SSRN: https://ssrn.com/abstract=397340

Paolo Vanini (Contact Author)

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
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)

Silvan Ebnöther

Zurich Cantonal Bank ( email )

Josefstrasse 222
CH-8000 Zurich
Switzerland

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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