Learn finance, banking, risk, data science and fintech

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.

Company Losses ($m) Area of Loss
Air Products 113 Leverage & Currency Swaps
Askin Securities 600 Mortgage-backed Securities
Baring Brothers 1240.5 Options
Cargill (Minnetonka Fund) 100 Mortgage Derivatives
Codelco Chile 200 Copper & Precious Metals Futures and Forwards
Glaxo Holdings PLC 150 Mortgage Derivatives
Long Term Capital Management 4000 Currency & Interest Rate Derivatives
Metallgesellschaft 1340 Energy Derivatives
Orange County 2000 Reverse Repurchase Agreements & Leveraged Structured Notes
Proctor & Gamble 157 Leveraged German Marks – US Dollars Spread
Try our courses on Data Science for Finance. JOIN FREE

Leave a Reply

Your email address will not be published. Required fields are marked *

Name *

This site uses Akismet to reduce spam. Learn how your comment data is processed.