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Operational risk management refers to the systematic process through which banks identify, assess, monitor, control, and mitigate risks arising from inadequate or failed internal processes, people, systems, or from external events. Unlike credit risk or market risk, operational risk is inherent in all banking activities and can emerge from routine operations as well as exceptional circumstances. In the banking sector, operational risk includes risks related to fraud, technology failures, human errors, legal issues, compliance lapses, cyber threats, and disruptions caused by natural disasters or external shocks. Effective operational risk management is essential for ensuring financial stability, protecting reputation, complying with regulatory requirements, and maintaining customer trust. The concept of operational risk gained prominence with the Basel II framework, which formally recognized it as a distinct category of risk alongside credit and market risk. Banks are required to hold capital to cover potential operational losses, emphasizing the importance of a structured and proactive approach to managing such risks. Operational risk management is not limited to minimizing losses after they occur; rather, it focuses on preventing risk events, reducing their frequency and severity, and enhancing organizational resilience. It involves embedding risk ___ ___ ______ __________ _________ ______ ________.
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