Banks are increasing their coverage against operational risk to comply with new international banking rules, but they may be underestimating the extent of the risks they face. The declines in market value of financial institutions that experienced an operational crisis—such as an embezzlement or breach of regulations—were much greater than the actual financial loss caused by the event, our research found.
Banks that understand the true scale of the operational risk they face can take a more realistic approach to controlling it.
This article includes the following exhibits:
* Exhibit 1: Impact of operational crises on market returns
* Exhibit 2: The five most harmful kinds of operational crises