Operational Risk and its Impacts on Financial Stability

This article illustrates the nature and significance of operational risk with regard to financial stability, using specific examples of major operational risk events in the Czech Republic and in other countries, and identifies the impacts of the newly introduced capital regulation of operational risk. It looks in detail at the incipient practice of risksensitive operational risk measurement using methods based on financial institutions' internal models. We also explore the issue of calculating the mandatory capital coverage for unexpected operational risk losses using group-wide models.