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The invention of operational risk

Power, Michael (2003) The invention of operational risk. CARR Discussion Papers, DP 16. Centre for Analysis of Risk and Regulation, London School of Economics and Political Science, London, UK. ISBN 0753016524

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Abstract

Until the 'Basel 2' reforms to banking supervision, operational risk was largely a residual category for risks and uncertainties which were difficult to quantify, insure and manage in traditional ways. This paper examines the rapid emergence of operational risk from this low epistemic status to its institutionalisation as a key component of global banking regulation. However, the meaning and implications of the Basel proposals have been fiercely contested by international banks and three key domains of policy controversy have been, and remain, particularly visible: definitional issues, data collection and the limits of quantification. Tensions in these three areas are discussed and reveal the significance of operational risk as a meeting point for diverse concerns and interests, and as a potential reinvention of a management knowledge hybrid between auditing and finance. The paper draws attention to the ironies and contradictions of this operational risk programme, which is part of a visionary project to extend 'enforced self-regulation' deep into the operations of banking, combining advanced technical modelling ideas on the one hand and softer corporate governance thinking on the other. The Basel 2 proposals also demonstrate the policy effectiveness of 'operational risk' as an agenda-forming category, whose success lies as much in the catalytic visibility of the issue, as in the in the details of implementation.

Item Type: Monograph (Discussion Paper)
Official URL: http://www2.lse.ac.uk/researchAndExpertise/units/C...
Additional Information: © 2003 London School of Economics and Political Science
Library of Congress subject classification: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Sets: Departments > Accounting and Finance
Research centres and groups > Centre for Analysis of Risk and Regulation (CARR)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: DP 16
Date Deposited: 12 Sep 2008 13:33
URL: http://eprints.lse.ac.uk/21368/

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