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The Operational Risk Handbook for Financial Companies: A guide to the new world of performance-oriented operational risk

Book Description

The Operational Risk Handbook for Financial Companies is a groundbreaking new book. It seeks to apply for the first time a range of proven operational risk techniques from other industries and disciplines to the troubled territory of financial services. Operational risk expert Brian Barnier introduces a range of sophisticated, dependable and - crucially - approachable tools for risk evaluation, risk response and risk governance. He provides a more robust way of gaining a better picture of risks, shows how to build risk-return awareness into decision making, and how to fix (and not just report) risks. The practical importance of fully understanding and acting on risk to the business begins in the foreword on plan-B thinking, penned by Marshall Carter, chairman of the NYSE and deputy chairman of NYSE Euronext. The book is unique because: - It is not just about modeling and a few basic tools derived from regulatory requirements. Instead, it looks at management of risk to operations across industries, professional disciplines and history to help ops risk leaders become aware of the entire landscape of proven experience, not just their own conference room. - It is not just about compliance. Instead, it looks to operations as part of performance - managing risk to return for shareholders and other interests (e.g. guarantee funds). - It is not content to look at risk in stand-alone segments or silos; instead it takes a systems approach. - It is not just about ops risk leaders sharing war stories at a conference. Instead, it introduces a panel of six financial institution board members who get risk management and provide their perspectives throughout the book to encourage/demand more from ops risk to meet the needs of the institution in the world. - It is not a semi-random collection of tips and tricks. Instead, it is grounded in a risk-management process flow tailored to financial companies from a range of proven experience, providing tools to help at each step. Suitable for companies of all sizes, this book is of direct relevance and use to all business managers, practitioners, boards and senior executives. Key insights from and for each are built into every chapter, including unique contributions from board members of a range of companies. The Operational Risk Handbook for Financial Companies is an essential book for making better decisions at every level of a financial company; ones that measurably improve outcomes for boards, managers, employees and shareholders alike.

Table of Contents

  1. Cover
  2. Publishing Details
  3. About the Author
  4. Acknowledgements
  5. Preface
    1. Who this book is for
    2. What this book does
    3. The right tool for the right job
  6. Foreword—Marshall Carter on Plan B Thinking
    1. The rising challenge of operational risk for financial services
    2. Three hurdles
    3. Shaping your thinking toward success
    4. Plan B in your pocket
  7. Introduction
    1. Touchstones to Keep Focus on Efficiency and Effectiveness
    2. ‘Been There, Done That’—the Voice of Experience
    3. Bringing it Together
  8. Part 1. Evaluating Risk
    1. 1.1. Lighting up ‘Dark Corners’
      1. Key concepts in these steps
    2. 1.2. Know the Business: Evaluating the Environment and the Enterprise
      1. The external environment shapes the risk profile
      2. Your enterprise shapes your ability to bounce back from adversity and seize opportunity
      3. Making it personal: knowing objectives and knowing the business
      4. An end-to-end view
      5. Summary
    3. 1.3. The Right Tool for the Right Risk Type
      1. Key points
    4. 1.4. Seeking Scenarios: Providing More Power to See—the ‘Why’ and ‘What’
      1. Key points
    5. 1.5. Creating More Robust Scenarios More Easily—the ‘How’
      1. Planning to create workshop value
      2. Conducting the scenario workshop for fun and value
      3. Summary
      4. Looking ahead
      5. Key points
    6. 1.6. Evaluating Scenario Quality and Avoiding Bias
      1. Life-like scenarios: checking their pulse
      2. To be biased is human; to critique is prudent
      3. Key points
    7. 1.7. Creating Insightful Single Sources of Risk Information
      1. Information to provide answers
      2. Organizing information more efficiently
      3. The right data organized the right way to make your job easier
      4. Key points
    8. 1.8. Capital Estimates: trips, traps and pitfalls
      1. Capital estimates and loss data—don’t miss the forest
      2. Approaches to capital modeling and trouble with techniques
      3. Capital estimate—overcoming barriers to getting value from VaR
      4. Key points
    9. 1.9. Capital and Performance Incentives
      1. Moving loss data analysis from a compliance to a performance basis
      2. Reducing capital by reducing risk
      3. Allocating capital to functional areas
      4. Key points
    10. 1.10. Watch for Warnings
      1. Watching the right things to reduce risk to objectives
      2. A sharp lookout—how to watch
      3. Key points
    11. 1.11. Key Insights for Evaluating Risk
  9. Part 2. Responding to Risks
    1. 2.1. Responding to Risk: Managing Options, Finding Balance, Creating Levers
      1. Focus on basics to avoid stumbling blocks
      2. Business objectives drive key actions
      3. Responding to risk essentials
      4. Operational risk leader difference
      5. Key points
    2. 2.2. Prioritizing Improvements
      1. Prioritizing improvement—capability areas and criteria
      2. Visualizing priorities—tools to make it easier
      3. Concluding thoughts
      4. Key points
    3. 2.3. Strengthening the Institution in its Environment
    4. 2.4. Improving Control Capability
      1. First step to control efficiency—clarity
      2. Testing controls—who does what?
      3. Toward more effective self-assessments
      4. Improving through automation
      5. Optimizing controls—the harmful and the helpful
      6. The operational risk leader difference
      7. Key points
    5. 2.5. Improving Product Management and Fraud Prevention
      1. Product management and fraud
      2. Key points
    6. 2.6. Improving IT-related Business Risk Management
      1. Financial services depend on information technology
      2. IT and risk management
      3. What does the operational risk leader need to know?
      4. Tailoring Risk IT to your organization’s needs
      5. Where do I start?
      6. Other guidance
      7. Key points
    7. 2.7. React and Recover—Right Action at the Right Time
      1. React to cascading events
      2. Recover from damage
      3. The operational risk leader difference
      4. Key points
    8. 2.8. Key Insights for Responding to Risk
  10. Part 3. Oversight of Risk Management
    1. 3.1. Oversight of Risk Management
      1. Business objective
      2. Make more risk–return-aware business decisions
      3. Begin with basics to get to the benefit
      4. Board skills and safeguards
      5. Key points
    2. 3.2. Four Functions of a Governor
      1. Using risk management—daily decisions
      2. Improve the culture
      3. Integrate with enterprise risk management
      4. Evaluate management’s implementation of risk management
      5. Enhancing external reporting
      6. Key points
    3. 3.3. Key Insights for Oversight and Governing Risk
  11. Part 4. You in Your Institution
    1. 4.1. Overcoming Barriers to Better Risk Management
      1. Evaluate the decision process
      2. Evaluate capabilities
      3. Evaluate hurdles
    2. 4.2. Your Questions for the Board of Directors
    3. 4.3. Conclusion: Your Opportunity to Make a Difference
      1. Evaluating risk
      2. Responding to risk
      3. Oversight and governance of risk
      4. Touchstones
      5. Don’t forget