Progress in Operational Risk at Large European Banks

Moody’s has reported that most large European banks are more focused on operational risk issues, but said that some banks were more advanced than others in addressing the qualitative and quantitative challenges of operational risk management. In its report on ‘Emerging Best Practices for Operational Risk Management at European Banks’, the ratings agency noted that there had been some degree of convergence on a number of issues relating to quantification and on the importance of qualitative tools for controlling operational risk. It added that there had been a recognition of the need to focus on infrequent but potentially severe risk events. The rating agency observed a number of instances in which qualitative tools such as risk control self-assessment have proven to be extremely useful in enhancing the overall efficiency of the institution, as well as increasing control effectiveness. But Moody’s added that the flawed design or implementation of qualitative tools can lead to material management problems.

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