Measuring Operational Risk - Ariane Chapelle video transcript

Operation risk has developed in many fronts so first of all data is better and more comprehensive so therefore better used. Scenario analysis has improved in terms of assessment of rare events and finally we understand the drivers of operational risk a bit better so elements like business environment and internal control factors are included increasingly included in modelling.

Yes there are many benefits to operational risk modelling way beyond compliance and capital numbers mainly because it forces firms to understand drivers in the determinants of operational risk much better and then improve management so there’s real value for managers to understand what the modellers are doing and conversely for modellers understanding the drivers of operational risk so they know what are behind the distribution points.

Well the AMA removal that is talked a lot about at the moment is a real danger for firms not to model operational risk anymore. There is a real risk that this whole activity will disappear to the detriment of the methodology and the understanding of risk together with the risk sensitivity. The approach that is considered by the Basel committee at the moment will not only be a strong disincentive to modelling but also to management because the approach that is considered is not risk sensitive at all therefore your capital will not change whether or not you’re a good risk manager which is of course a very bad idea.

Measuring Operational Risk - Ariane Chapelle video

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