Operational risk: a challenge for banks and enterprises

Operational risk represents the possibility of incurring losses due to failures in internal processes, human resources, technological systems, or as a result of external events. This type of risk is increasingly relevant, particularly for banks, which must consider it in managing their day-to-day operations.

What is operational risk?

Operational risk occurs when a company’s or bank’s internal procedures are inadequate to prevent or properly handle problems such as human error, technological failure, or unforeseen events. A common example is vulnerability to computer viruses, which can compromise the security of corporate data and cause significant financial losses.

This risk is not only limited to technical or management errors, but can also result from external factors such as natural disasters or regulatory changes that affect business operations.

Operational risk and the new Basel Accord

With the entry into force of the new Basel Accord (Basel II) in 2006, operational risk was officially recognized as a risk category to be considered when calculating banks’ capital requirements. Prior to Basel II, bank capital requirements focused mainly on credit and market risks. The inclusion of this risk reflects the growing importance of this factor in the modern financial world, where technology plays a key role.

Methods of measuring operational risk

There are three main approaches to measuring operational risk:

1. Basic Indicator Approach (BIA) Simplified Method.
   This method is the simplest and is based on using a single indicator, such as 20 percent of average annual gross profit, to calculate capital requirements. It does not require significant changes in current banking practices and is generally used by small banks.
2. Standard method
   The standard approach allows banks to calculate capital requirements using one risk indicator for each of their business units, such as gross profit or capital. This approach can lead to a significant reduction in required reserves compared to the simplified method, thus providing an incentive for banks to implement it.
3. Advanced Measurement Approach (AMA).
   The AMA approach allows banks to develop and use their own operational risk measurement system, provided it is sufficiently comprehensive and systematic.While this approach is the most complex, it offers greater flexibility and self-discipline, allowing banks to better adapt to their own operational specifics.

Why is it important to manage operational risk?

Effective management of operational risk is critical to reducing financial losses and protecting corporate reputation. As systems become more digitized and interconnected, risks related to cybersecurity and technology have become increasingly relevant. In addition, human errors and inefficiencies in internal processes can lead to high costs, which could undermine a company’s financial sustainability.

Operational risk is a crucial aspect to keep under control, especially for banks and large enterprises that manage complex cash flows and operate in highly regulated environments. The choice of the most appropriate measurement method depends on the size of the organization and the complexity of its operations, but the goal remains the same: to minimize losses from unexpected operational events.

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