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The importance of operational risk in banking and how it is allowed for the Basel capital accords

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  1. According to paragraph 644 of Basel ll
  2. Three approaches designed to quantify operational risk with different sensitivity to contribute to a better monitoring of this risk

Risks in banking sector are related to a number of unpredictable events that one cannot forecast which could cause huge consequences on the activity of a bank. Hence, its ability and its expertise in managing those risks is a major challenge for the sector and its sustainability.
Here are the major risks that the banks are confronting: Credit risks, Market risks and Operational risks.
In the recent events, such as the Subprime mortgage crisis and Societe Generale fraud case has proven the weakness of the number of processes of risks containment within the banks and the financial sector. Such events have strengthened the necessity and the need establishing an operational process control within the financial institutions.

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