A new risk was born in the mid-1990s known as operational risk. Though its application varied by institutions—Basel II for banks and Solvency II for insurance companies—the idea stays the same. Firms are interested in operational risk because exposure can be fatal. Hence, it has become one of the major risks of the financial sector. In this study, we are going to define operational risk in addition to its applications regarding banks and insurance companies. Moreover, we will discuss the different measurement criteria related to some examples and applications that explain how things work in real life.
Basel II and Operational Risk: Implications for Risk Measurement and Management in the Financial Sector