Wide definition

Wide definition: other banks have adopted a wide definition of operational risk.
Some have defined it as all risks not covered by market or credit risk. The rationale
for this is to consider all potential impacts on the profit and loss account not
measured by the risk measures employed to address market and credit risks.
This definition has, however, caused problems as many banks feel that this
should be limited to what we can (relatively) easily measure. For example, in
relation to a system failure, the loss may be quantified as the amount of revenue
lost and extra cost incurred during the time when the system was not operational.
For an event like a transaction error, such as late settlement, the loss can be
quantified as the sum of the penalty charges, interest costs and labour costs of
remedial action. The problem with this approach is that it may leave an unidentified
residue which could impact the profit and loss statement materially and
undermine the wide definition approach. Other banks have analyzed a fourth risk
category: business, external or strategic risk. This may be defined as the risk of
external events or trends which impact the profit and loss account such as loss
of market share due to competitor pressure or changes in laws or regulations.
This has been stripped out of the risk universe as a separate category as it is
normally addressed by the strategy department in conjunction with the business
units as part of the normal planning process.