The Invention of Operational Risk

i-Studio 5 seminars, seminar 5: 29 May 2002
Professor Mike Power LSE

This seminar will consider the convergence between accounting-based ideas of internal control and the growing importance of 'operational risk' as a category for organising risk management thinking and practice in banking and financial services.

Operational risk has emerged in insurance and finance as a residual category for risks and uncertainties that are difficulty to quantify, insure and manage in traditional ways. In particular, increasing attention to low probability/ high impact events of varying kinds (rogue traders, defective components, earthquakes, terrorism) has created pressures for new configurations of risk management knowledge. In part, this is characterised by the attempt to extend quantification to diverse phenomena and to devise new financial instruments and methods of risk transfer. In part, it signals a new attentiveness to the 'control culture' of organisations and the structural conditions and incentives affecting organisational decision making.

Overall the seminar will address the varied sources of understandings and meanings of 'operational risk' within the recent Basel proposals and will suggest that the concept and the practices for which it is a label remain contested and incomplete.

^