Chapter 17

Question 1

What is reputational risk? Give a simple example

Answer 1

It is actions from the FI that causes a loss of trust from clients, the market and regulators. It is operational risk that turns into reputational risk

Ex: A bank can’t operate for the day since the ATM’s broke. It will get bad press for the day

Question 2

What does technology allow for?

Answer 2

For scalability in a cost saving way

Question 3

How do you mitigate operational risk?

Answer 3

Internal control

Question 4

What are the 5 sources of operational risks?

Answer 4

1) technology
2) employees
3) customer relationships
4) capital assets
5) external (ex: fraud)

Question 5

Are technology investments high or low cost? What is their typical NPV’s

Answer 5

High cost. The typical NPV is negative

Question 6

What is economies of scope

Answer 6

How many people you can reach with one product. This drops the cost of each good produced

Question 7

What is economies of scope

Answer 7

How many products you can offer to one person. This increases the cost of each good produced