Chapter 1 Key Learning Questions Flashcards
What is the definition of operational risk?
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events
What are the common risk types?
The common risk types include operational risk, strategic risk, credit risk, and market risk[
What types of risk are covered within the scope of operational risk?
Operational risk covers risks related to internal processes, people, systems, and external events, including legal risk but excluding strategic and reputational risk
How does operational risk differ from risk within other categories (e.g., strategic risk, credit risk)?
Operational risk focuses on the day-to-day business operations and is related to internal processes, people, and systems, while strategic risk is associated with the overall business strategy and direction, and credit risk is related to the potential default of borrowers or counterparties
What are the key causal factors of operational risk?
The key causal factors of operational risk include inadequate or failed internal processes, human errors, system failures, and external events
What is the difference between expected and unexpected risk?
Expected risk refers to the risk that is anticipated and can be managed, while unexpected risk refers to unforeseen events or risks that are difficult to predict and manage
What are the various operational risk event types covered within Basel II?
Basel II covers seven operational risk event types: internal fraud, external fraud, employment practices and workplace safety, clients, products and business practices, damage to physical assets, business disruption and system failures, and execution, delivery, and process management
What are the common manifestations of operational risk?
Common manifestations of operational risk include process failures, human errors, system failures, and external events such as natural disasters, fraud, or regulatory changes
What is a bow tie method?
A bow-tie model is a visual representation of the relationship between causes, events, and impacts in operational risk management. It helps identify and analyze the causal drivers of operational risk and the controls implemented to mitigate them
What is the relationship between cause, event, and impact?
The relationship between cause, event, and impact is that causes lead to events, which in turn result in impacts. In the context of operational risk, causes are the factors that trigger operational risk events, and impacts are the consequences of those events
What types of controls are implemented between cause and event?
Preventive controls are implemented between cause and event to reduce the likelihood of operational risk events occurring. These controls include policies, procedures, training, and monitoring
What types of controls are implemented between event and impact?
Mitigating controls are implemented between event and impact to minimize the consequences of operational risk events. These controls include contingency plans, insurance, and crisis management
What are the common types of risk responses?
Common types of risk responses include risk avoidance, risk reduction, risk transfer, and risk acceptance
