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OPERATIONAL RISK AND OPERATIONAL RISK MANAGEMENT FRAMEWORK
How does the Basel II framework define operational risk?
Basel II defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. This definition includes legal risk but explicitly excludes strategic and reputational risk.
What is the definition of operational risk as per Basel II?
Risk of loss from failed processes, people, systems, or external events.
What are the three pillars of the Basel II framework that govern operational risk?
The three pillars are Pillar 1 (minimum capital requirements), Pillar 2 (supervisory review process), and Pillar 3 (market discipline through public disclosure). Together they form a comprehensive approach to risk management including operational risk.
What does the Operational Risk Management Framework (ORMF) establish in a bank?
Policies, procedures, and governance structures to identify and manage operational risk.
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