Tackling the Insufficiency of Loss Data for the Quantification of Operational Risk

In recent years, spectacular defaults, such as Barings, as well as new requirements from the Basel Committee on Banking Supervision (Basel II) have forced banks to start measuring and managing operational risks (OpRisk) risks arising from the failure of people, processes, systems and external events. Contrary to market and credit risk, there are no standard methods for the quantification of operational risks yet. While the discussion about finding the right methods goes on, a key requirement for any type of quantification a solid loss database is not yet met across the banking industry. In this article we will elaborate on the reasons for the lack of high quality data and highlight their implications. Furthermore, we propose possible solutions to these problems.