Adequate Capital and Stress Testing for Operational Risks*

INDUSTRY TRENDS AND PRACTICES The banking industry has become increasingly more complex in recent years. Some of the reasons are the growing sophistication of financial products such as collateralised debt obligations (CDOs) and credit derivatives, growing activities of banks across several legal and regulatory systems in course of a general globalisation, growing reliance on globally integrated IT-systems, and growing complexity in organisation due to large-scale mergers or outsourcing of clearing and settlement systems. Operational risk is classified as “the risk of losses resulting from inadequate or failed internal processes, people and systems or from external events” (see Basel Committee on Banking Supervision, 2003a,b). Possible operational risk categories are (van den Brink, 2002):