Managing Operational Risk in Financial Markets

Front Cover
Butterworth-Heinemann, 2000 - Business & Economics - 271 pages
1 Review

Risk Management is one of the biggest issues facing the financial markets today. 'Managing Operational Risk in Financial Markets' outlines the major issues for risk management and focuses on operational risk as a key activity in managing risk on an enterprise-wide basis.

While risk management had always been an integral part of financial activity, the 1990s has seen the requirement for risk management establish itself as a key function within banks and other financial institutions. With greater emphasis on ensuring that money is not lost through adverse market conditions, counterparty failure or inappropriate controls, systems or people, risk management has become a discipline in its own right. Managing risk is now THE paramount topic within the financial sector. Recurring major losses through the 1990s has shocked financial institutions into placing much greater emphasis on risk management and controls. The collapse of Barings and losses made by Metallgescellschaft, Orange County, Diawa and Sumitomo as a result of a lack of procedures, systems or managerial control has demonstrated to organisations the need to broaden the scope of their risk management activity from merely looking at market and credit risk. This has brought into focus the need for managing operational risk. Operational risk can only be managed on an enterprise wide basis as it includes the entire process of policies, culture, procedures, expertise and systems that an institution needs in order to manage all the risks resulting from its financial transactions. In fact, in order to effectively manage market and credit risks it is necessary to have the relevant skills and expertise in the staff, technical and organisational infrastructure, as well as monitoring and control systems. As all of these are components of operational risk, it then becomes apparent that an integrated risk management approach needs to focus on operational risk.



  • Provides a comprehensive framework for the management of operational risk
  • Defines the spectrum of risks faced by organisations and how they can effectively manage these
  • Develops an enterprise-wide risk information system and defines the major challenges that need to be addressed in developing such a system
 

What people are saying - Write a review

We haven't found any reviews in the usual places.

Contents

Introduction
1
Financial losses over the past few years
7
Collapse of Barings
11
Requirement for risk management
17
Derivatives and risk management
18
Hedging existing positions
19
Leverage risks and volatility
20
Introduction to derivatives
22
Case study ABC Futures
131
Phase 1 Definition
133
Phase 2 Implementation
139
Phase 3 Measurement
141
The learning organization
143
Why become a learning organization?
144
Creating a learning organization
146
Barriers to learning
150

Understanding derivatives products
28
Futures contracts
30
Options contracts
32
Forward contracts
34
Forward rate agreements FRAs
35
Swaps
37
Product comparisons
39
Understanding the market structures
42
Impact of technology
44
Structure of the exchanges
45
Role of the clearing house
47
Clearing members and their clients
49
Transaction processing and settlement for OTC instruments
50
Data capture
51
Management information and internal controls
52
Settlement
53
Operational risk survey carried out for this book
56
Results of the market survey
57
Organizational structure identified during the survey
59
Operations structure
61
1997 Operational Risk Management Survey
70
Operations cultural model
71
Risk spectrum
74
Risk categories
76
Market risk
77
Credit risk
78
Managing operational risk
91
Why manage operational risk?
95
Client demand
97
Need for integrated risk management
98
G30 and Basle Committee reports on risk management
99
Risk management framework
103
The role of senior management
105
Risk management culture
110
Enterprisewide coordination
116
Managing organizational paradoxes
117
The paradox of control
120
The paradox of work flexibility
121
Toward a more flexible organization
122
Business process reengineering
125
Benefits of BPR
127
Staff empowerment
128
BPR processes
129
Knowledge management
151
The role of technology in knowledge management
155
Change management
157
Resistance to change
159
Force field analysis
161
Stage 1 Creating a vision
162
Developing commitment
163
Preparing for change
164
Postimplementation issues
165
New role for operations
168
Enterprisewide risk management
172
The role of technology
173
Enterprisewide risk information systems
175
Component or product layer
179
Interface layer
181
Data integration engine
182
Challenges to enterprisewide risk management
183
Build or buy?
186
Inhouse development
188
Deciding to buy a system
189
Outsourcing the development to an external supplier
191
Project management for an enterprisewide risk management system
195
Technology risk
196
Financial risk
197
Business control and security risk
198
Project manager
199
Risk assessment
200
Technical issues
201
Project schedules
202
Progress monitoring and control
203
External suppliers and influences
205
Implementation and operational issues
206
Operational risk model
208
Operational risk management cycles
210
Risk environment
212
Risk management and control
214
Conclusions
220
Glossary
224
Exchange codes
247
Operational risk management
248
Bibliography
259
Index
265
Copyright

Other editions - View all

Common terms and phrases

References to this book

Bibliographic information