Managing operational risk capital in financial institutions

ABSTRACT There have been considerable improvements in the measurement of operational risk, particularly since the Basel Capital Accord has come into force. This has provided the opportunity for more effective and efficient management of the risk capital allocated to operational risk. We discuss ways in which this risk capital could be managed with reference to some profitability analysis. Based on this, a corporation can begin to refine its strategy with respect to the operations carried out by its subunits. The risk capital can then be used to control both the growth and the assumption of operational risk by the corporation.