ABSTRACT
Operational risks are present and affect everyone across every business. In every operation undertaken in an organization, operational risks are involved. With the advent of the Basel II Accord, increasing attention is being given, and rightly so, to the assessment, control, and management of operational risks in financial organizations. The goal of operational risk management is to manage all those risks that are currently or potentially affecting operations so that business objectives can be accomplished with a minimum amount of loss. Managing does not necessarily mean eliminating but, more important, learning how to accept and minimize certain operational risks. The banking industry is by far the most advanced industry in attempting to manage credit, market, and operational risks in an integrated manner. Regulatory pressure has helped and motivated the banks to adopt a strategic approach to operational continuity and risk management. Banks are realizing that, by managing risks on the operational side, they can maximize returns through more efficient use of capital, thereby increasing shareholder value. The strong points for implementing Basel II stand out loud and clear. Apart from stakeholders increasing the pressure on their banks to adopt the Basel II Accord, regulators and analysts are clearly expecting banks to act on Basel II principles. Regulators will take this into account while issuing opinions and assessing the market.
Furthermore, credit rating agencies are also expecting banks to act on the accord. Fundamentally, the message is this: the greater the effort an organization adopts to understand, mitigate, and manage operational risks, the safer its business is considered to be, and the capital charge lowers accordingly. Whatever financial organizations intend to do, they must ensure that they fulfill regulatory requirements and observe all laws, financial or otherwise. A bank’s reputation, its most valuable asset, is an issue of confidence and trust for which aspects of safety and security play a crucial role.
