Operational risk information system: a challenge for the banking sector

Abstract

PurposeThe purpose of this paper is to analyse the capacity of response of the banking sector's information systems (IS), in the light of the new requirements of Basel II (Basel Bank for International Settlements) on the measurement and control of operational risk (OR).Design/methodology/approachBy means of a structured case, developed with a Spanish savings bank of medium size, an analysis is made of the practices and structures that may need to be modified to prevent a loss of competitive position. Lastly specific improvements are proposed to facilitate the implementation of an operational risk information system (OR‐IS).FindingsThe paper concludes that there still exists a considerable distance between the current IS in use and an OR‐IS compatible with the model proposed under Basel II, for that kind of entities, and indicates the opportunities and incentives that would arise in the attempt to reduce this distance.Practical implicationsThe IS of a bank should evolve towards the achievement of an OR‐IS that enables the bank's competitive position to be strengthened. In addition, the bank should aspire to obtain the external validation of its supervisory authority, which certifies the OR‐IS implemented and classifies it as an advanced measurement approach (AMA) under Basel II. An analysis is made of the principal organisational weaknesses and necessities that should be rectified, with a view to applying the methodologies designated the AMA to OR in the Basel II agreement.Originality/valueBasel II has given increased visibility to the “OR” variable and there has been little explicit research into the process by which managers and organisations at medium sized entities decide to develop IS capable to measure and mitigate this new risk.