Summarize Essay Example | Topics and Well Written Essays - 2000 words

Summarize - Essay Example This resulted in the issuance of Basel II by the Basel Committee on Banking Supervision (BCBS), which was set by the governors of the G10 countries. In the attempt of Basel II to increase the amount of capital held by banks, the concept of operational risk was introduced for the first time. Following this move, the Capital Requirements Directive was introduced in the EU, and shortly after the ICAAP was developed. The provisions of Basel II included the setting of the minimum capital to be held by banks, the risk types covered, the winding down requirement for businesses and company’s disclosure requirements. The application of Basel II started with the banks and insurers and then Asset management firms and brokerages. The approach towards the application of the Basel II by these institutions was determined by both the complexity and the size of the institutions. Thus, since 2000, the subject of risk management started to grow, and different approaches to the concept started to developed. The requirements of risk management are risk appetite, defined as how much risk a firm is ready to accept, the risk assessment process, KRI’s-the metric showing when a risk is about to occur, error management, risk technology and risk governance. Between 2002 and 2010 the setting up of risk management departments continued, while negative organizational culture also emerged as a big operational risk. The rise of operational risks was marked by noughties frauds valued at $22.31bn, followed by John Rusnak Allied Irish Bank fraud 2002 and then the Peter Young Morgan Grenfell trading fraud 1997. The collapse of the Lehman Brothers in 2008 continued the rogue trading and risk operational activities, causing a regulatory reaction by the EU, which pushed the limits on fund management higher. Subsequently, the Basel III, CRD 2 and 3 Solvency II were also developed to push up the industry understanding of the risk management. This was followed by