Operational risk is the potential for a loss arising from people, processes, systems, or external events that influence a business function. In recent years a hot topic in financial services has been the development of operational risk recommendations and regulations for banking. The Basel Committee on Banking Supervision (BCBS) created the Basel Accords to provide definitions of formal techniques for the quantification of operational risk, credit risk, liquidity risk and market risk.
Effective techniques for managing operational risks to achieve Basel II/III compliance include building customized models, performing Monte Carlo simulations, and analyzing a variety of scenarios to assess risk exposure arising from financial activities exposed to operation risks.
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