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Operational risk control with Basel II: basic principles and capital requirements

Author: Chorafas, Dimitris N. Series: Elsevier finance Publisher: Elsevier Butterworth-Heinemann, 2004.Language: EnglishDescription: 357 p. : Graphs/Ill. ; 24 cm.ISBN: 0750659092Type of document: BookBibliography/Index: Includes bibliographical references and index
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Item type Current location Collection Call number Status Date due Barcode Item holds
Book Europe Campus
Main Collection
Print HG1615 .C467 2004
(Browse shelf)
001229008
Available 001229008
Total holds: 0

Includes bibliographical references and index

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Operational Risk Control with Basel II Basic Principles and Capital Requirements Contents Foreword Preface Acknowledgements xi xv xix Part 1: Operational risk is present at any time in every enterprise 1 Management control of operational risk 1.1 Introduction 1.2 The presence of operational risk in an organization 1.3 The management of operational risk events 1.4 Supervisory response to operational risk 1.5 A strategy for bringing operational risk under control 1.6 Operational risk must be managed at all organizational levels 1.7 Turning operational risk control into a senior management tool 2 Classification, identification and monitoring of operational risk 2.1 Introduction 2.2 Basel Committee directives in understanding operational risk 2.3 Classification of operational risks and the Basel Committee 2.4 A classification and identification system for operational risks 2.5 The Chorafas parallel code system as an organizational infrastructure 2.6 Quantitative and qualitative approaches to operational risk identification 2.7 A framework for monitoring operational risk 2.8 The art of operational risk modeling 2.9 The role of internal control and auditing in operational risk management 3 Legal risk 3.1 Introduction 3.2 Back to basics: the definition of tort 3.3 Responsibilities resulting from legal risk 3.4 Contractual aspects of legal risk 3.5 Crossborder legal risk and bankruptcy laws 3.6 Legal risk may be an impediment to a solution to a banking crisis 3.7 Huge credit losses, securitized corporates and legal risk 3.8 Compliance risk: a case study with the Year 2000 problem 1 3 3 4 8 11 14 18 21 26 26 27 30 32 35 37 40 42 44 49 49 50 52 55 58 61 63 66 vi Contents 4 Management risk 4.1 Introduction 4.2 Management risk in the power crisis in the United States 4.3 The changing nature of energy business calls for high grade management skill 4.4 An operational risk which morphs into major credit risk 4.5 The derivatives losses of EDS: a different management risk 4.6 Management risk at Tyco International 4.7 The CEO should be an example of virtue, not of malfeasance 4.8 Conflicts of interest: from IPOs to disappearing technology firms 5 Information technology risk 5.1 Introduction 5.2 Technology risk defined 5.3 The growing role of IT and its risks 5.4 Advanced IT solutions and smart environments 5.5 Business continuity and IT-related operational risk 5.6 System reliability should always be a major objective 5.7 Trading, payments, settlements, and operational risk associated to IT 5.8 Operational risks that may result from IT outsourcing and insourcing Part 2: Capital requirements for operational risk and Basel II solutions 6 Allocation of capital to operational risk according to Basel II 6.1 Introduction 6.2 Regulatory capital vs economic capital 6.3 Economic capital and levels of confidence 6.4 A bird's-eye view of models for operational risk reserves 6.5 The choice among methods for operational risk modeling 6.6 Capital standards and operational risk control costs 6.7 Allocating regulatory capital and economic capital to operational risk 6.8 Capital at risk with operational type losses: a case study 6.9 Operational risk control at the Erste Bank 7 Five models by the Basel Committee for computation of operational risk 7.1 Introduction 141 7.2 The effort to measure operational risk and the basic indicator approach 7.3 Capital charges under the Basel Committee's standard approach 7.4 The effort to develop advanced measurement approaches 7.5 Capital allocation with the loss distribution approach 7.6 Databasing and datamining information on operational risks 7.7 Early findings with operational risk models, and the notion of model risk 70 70 71 74 76 78 82 85 87 90 90 91 95 98 102 105 109 111 115 117 117 118 120 124 128 131 133 135 138 141 142 145 150 152 156 159 Contents vii 8 High frequency events, low frequency events and the Six Sigma method 8.1 Introduction 8.2 Understanding the concepts of high frequency and low frequency events 8.3 Characteristics of high frequency and low frequency events 8.4 Experimentation and system design for operational risk control 8.5 Tools most useful in the analysis of operational risks 8.6 Using Six Sigma to improve management control over operations 8.7 The practical applications of Six Sigma are convincing 9 Market discipline, contrary opinion and scoreboard solutions 9.1 Introduction 9.2 The Basel Committee on scoreboards and market discipline 9.3 The use of templates with scoreboards 9.4 Developing more sophisticated scoreboard practices 9.5 Extreme value theory and genetic algorithms for operational risk control 9.6 A common project on operational risk by a group of financial institutions 9.7 A devil's advocate in operational risk management 163 163 164 168 170 174 177 180 184 184 185 188 191 195 198 202 Part 3: Control of technical risk and operational risk in the insurance industry 10 The science of insurance and the notion of technical risk 10.1 Introduction 10.2 The science of insurance 10.3 Definition of risk factors and their aftermath 10.4 Underwriting risk in insurance and the actuaries 10.5 Assets held by insurers and their risks 10.6 The insurance of operational risk and its underwriting 10.7 Services provided by reinsurance: a proxy for insurance of operational risk 11 The use of insurance policies to mitigate operational risk 11.1 Introduction 11.2 Cost of equity, cost of debt, and cost of insurance 11.3 Operational risk securitization and moral hazard 11.4 Advent of insurance-linked protection vehicles and underwriters risk 11.5 Integrative approaches through alternative risk transfer (ART) 11.6 Frequency and impact of events in operational risk transfer through insurance 11.7 Insurers who don't do their homework get burned 11.8 Challenges with value accounting in the insurance business 207 209 209 210 213 216 219 223 226 230 230 231 233 237 240 243 245 247 viii Contents 12 Role of rating agencies in the creditworthiness of insurance firms 12.1 Introduction 12.2 Independent rating agencies, their business and their role 12.3 Insurance companies and independent rating agencies 12.4 Qualitative and quantitative approaches to rating insurance companies 12.5 Information is the critical product of rating agencies 12.6 Analytical studies are the way of being in charge of risks 12.7 Operational risk with marine insurance underwriting: a case study 13 Tort is technical and operational risk of insurers 13.1 Introduction 13.2 Why tort reform is necessary 13.3 Learning from the precedent of Y2K tort 13.4 Compensation for claims: a case study with asbestos 13.5 Asbestos claims have been a nightmare to the insurance industry 13.6 Challenges facing major financial institutions and their daily business 13.7 Tort exposure and management risk correlate 14 The challenge of terrorism and insurer of last resort 14.1 Introduction 14.2 Business disruption resulting from 9/11 14.3 Learning from technical limits with insurance of natural catastrophes 14.4 Policies for rethinking insurability of operational risks 14.5 Benefits catastrophe bonds might provide 14.6 Lloyd's record losses with 9/11: a prognosticator of future red ink? 14.7 Governments as insurers of last resort: a precedent with deposit insurance 251 251 253 255 259 262 266 268 274 274 275 277 279 281 284 287 290 290 292 294 298 301 303 307 Part 4 The importance of cost-consciousness in operational risk control 15 Deficient cost control is the result of management risk 15.1 Introduction 15.2 The low cost producer holds the upper ground 15.3 Alert companies are in charge of their risks and of their costs: Berkshire and TIAA 15.4 An example of controllable technology spending 15.5 Isaac Newton appreciated that throwing money at the problem leads nowhere 15.6 Putting into action a costing and pricing mechanism for operational risk control 311 313 313 314 319 322 324 328 Contents ix 16 Cost control is indivisible from operational risk management 16.1 Introduction 16.2 The cost of staying in business 16.3 Operational risk control and the administrative budget 16.4 Are mergers and disinvestments a good way to cut costs? 16.5 Why fat executive options work against shareholder value 16.6 What it means to be in charge of re-engineering 16.7 Establishing and sustaining a transnational advantage 16.8 Capitalizing on the evolving role of financial instruments Index 331 331 332 334 338 341 343 346 348 351

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