SCENARIO RESEARCH FOR BASEL II OPERATIONAL RISK MANAGEMENT
1Introduction: Scenario Analysis for Potential Catastrophic Losses1 2Addressing Detailed Risk3
3Scenario Analysis in a Risk Measurement Framework5
4Scenario Analysis in a Risk Management Framework6
5Achieving Risk Measurement and Management6
6Conclusion: Benefiting from Circumstance Analysis7
1Introduction: Scenario Evaluation for Potential Catastrophic Failures " Will you be saying that you want all of us to figure out how to lose R50 mil? вЂќ asked the risk manager for the fund technology and services unit of a giant bank. " Obviously, you may have no idea how each of our funds will be managed or what intense measures we take to make sure that necessary is dropped. вЂќ Using a hint of pride in the voice, this individual added, " You know the monthly losses are only in the thousands of Flanke, even though all of us handle an incredible number of Rand normally. We are able to accomplish this because we certainly have sound procedures for money administration, prudent recommendations for investment and highly trained personnel. вЂќ Not very easily dissuaded, Leslie, the situation analysis manager, responded simply by acknowledging the risk manager's success. However , your woman urged him to identify a band of key personnel to engage in a situation analysis physical exercise. The goal of this kind of exercise would be to identify potential scenarios that could create deficits above the R50 million threshold, which was established intended for identifying low probability, high-severity losses. She added that such situations were being designed across the standard bank because of heightened emphasis on risikomanagement and compliance. Although he was sceptical, raise the risk manager recognized the business unit manager, complying manager, client relations manager, systems and technology administrator, and fund operations supervisor to engage in the work out. Based on her earlier conversation with the risk manager, Leslie anticipated that she would have to use almost all her facilitation skills to find the group to accomplish some unconstrained thinking. She thanked everyone for participating, gave them a brief summary of regulatory requirements, explained the organization value from the exercise and urged these to think creatively about possibly large deficits. At first the group was reluctant and said that that they could not imagine any group of factors or perhaps circumstances that might cause a lack of such substantial magnitude. The organization unit manager stated that they were a support function and did not publication losses, " Fraud is non-existent inside our world. Do not have deal instruments just like credit cards, and so we are typically not targeted by online hackers. And each of our transactions possess good controls, so problems are typically low. вЂќ Following discussing and rejecting some scenarios, this appeared the fact that group had reached a great impasse. To spur additional creative thinking, Leslie asked if the few of them could collude to defraud the bank. Now, the devices and technology manager declared he alone could defraud the bank and did not need to collude with anyone. This individual added, " I have finish access to client data heurt and control over their fingertips. I can easily look at deal history more than several years and know which usually accounts happen to be dormant and which are activeвЂ”this information, consisting of buying characteristics, is valuable for the identity fraud market. I really could take tags from quite some time back, create a disposal trail with fakes, sell the info, and no one would ever learn how it happened or perhaps who achieved it. вЂќ Simply by watching the faces in the participants, Leslie saw that she was successful in identifying any loss situation and thanked the systems and technology manager for his suggestions in designing a scenario under the Basel damage category, Inner Fraud, Robbery and Fraudulence. Several latest events give credence to such a hypothetical reduction scenario: вЂў ChoicePoint known selling info on over 140, 000 customers to a identity theft ring. вЂў Bank of America admitted to burning off tapes with customer identifiers and...
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