The British Bankers Association has launched an operational risk management database that collates loss information from banks worldwide.
The database is designed to help banks determine the effectiveness of their operational risk management procedures by providing a comparative benchmark against their peers.
The BBA’s definition of operational risk is “the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events”. It therefore covers areas such as fraud, theft, computer network failure, riots, floods and processing errors.
The initiative, which will take the form of a database containing information on global operational losses made by individual banks, will enable banks to compare their performance against their competitors and highlight vulnerable areas. It will also provide data on which banks can develop better analytical tools to identify and mitigate their risks in this key area, says the BBA.
The BBA will compile the information and report back to participating banks after removing any identifiers to ensure that while an individual bank can recognise its own data, it cannot link other data to specific competitors.
The BBA says it introduced the scheme in response to requests from its members and will initially include data from 22 banks from the UK, Europe, North America and Australia, although more banks are expected to join as the project develops momentum.
First phase participants include: Abbey National, Alliance & Leicester, Allied Irish Bank, Bank of Ireland, Bankgesellschaft Berlin, Barclays, Bristol & West, Co-operative Bank, Credit Lyonnais, EFG Private Bank, Halifax, C Hoare & Co, HSBC Bank plc, LloydsTSB, Mellon, Standard Chartered, The Royal Bank of Scotland, Westpac and Woolwich.
Tim Sweeney, director general of the British Bankers’ Association says: “A bank is exposed to operational risk long before it lends anyone a penny. Fortunately large operational losses don’t happen very often, but when they do, they are high profile. For the first time banks will now have a benchmark that they can use to help develop risk models and focus their risk-related management strategy.”