In the decade since the global financial crisis, banks—and their regulators—have become increasingly mindful of the need to manage risk. However, while banks have developed sophisticated systems for controlling financial risk, they have struggled to deal effectively with operational risk.
Financial risk includes credit risk (the likelihood that borrowers will pay back their loans), market risk (the likelihood that a security will fluctuate in value) and liquidity risk (the ability of a bank to meet its obligations to its depositors and counterparties). Operational risk (OR) is the risk of loss due to errors, breaches, interruptions or damages—either intentional or accidental—caused by people, internal processes, systems or external events.
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