Operational Risk Losses in Practice

Over the past few years, operational risk has gained much attention in the financial services industry. This is partially because many of the largest losses in the financial industry have their roots in the failure of operational risk.

As the financial technology becomes more and more advanced, and the industry moves further towards globalization, the banking function becomes more complex, which further advances the case of managing operational risk efficiently.

However, operational risk is not really new. According to Fitch rating agency, "Operational risk is as new as the banking industry itself, and yet, the industry has only recently arrived at a definition of what it is." According to Moody's, "Operational risk management improves the quality and stability of earnings, thereby enhancing the competitive position of the bank and facilitating its long-term survival."

Listed below are some of the largest derivative losses, where the losses are, at least partially attributable to operational risk failure.

CompanyLosses ($m)Area of Loss
Air Products113Leverage & Currency Swaps
Askin Securities600Mortgage-backed Securities
Baring Brothers1240.5Options
Cargill (Minnetonka Fund)100Mortgage Derivatives
Codelco Chile200Copper & Precious Metals Futures and Forwards
Glaxo Holdings PLC150Mortgage Derivatives
Long Term Capital Management4000Currency & Interest Rate Derivatives
Metallgesellschaft1340Energy Derivatives
Orange County2000Reverse Repurchase Agreements & Leveraged Structured Notes
Proctor & Gamble157Leveraged German Marks - US Dollars Spread
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