OPERATIONAL RISK AND OPERATIONAL RISK MANAGEMENT FRAMEWORK
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Risk Management (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
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.
What are the seven Basel II event-type categories for operational risk losses?
The seven categories are: internal fraud, external fraud, employment practices and workplace safety, clients/products/business practices, damage to physical assets, business disruption and system failures, and execution/delivery/process management.
What is the primary objective of operational risk management in banks?
To minimise unexpected losses and ensure business continuity.
What is the Basic Indicator Approach (BIA) for calculating operational risk capital?
Under BIA, a bank holds capital equal to 15% of the average positive annual gross income over the previous three years. It is the simplest approach and suitable for smaller, less complex banks.
What are the main sources of operational risk in a bank?
People, processes, systems, and external events.
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