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Operational risk refers to the risk of loss resulting from inadequate or failed internal processes, people, systems, or from external events. Unlike credit or market risks, operational risk is inherently embedded in all banking processes and is often more difficult to quantify due to its wide-ranging and unpredictable nature. Operational risk can arise from human error, fraud, system failures, cyberattacks, natural disasters, or regulatory breaches. In the context of bank financial management, understanding and managing operational risk is essential to ensure the soundness, reliability, and efficiency of banking operations. Operational risk is not limited to losses caused by operational failures alone; it also encompasses compliance risk, legal risk, reputational risk, and outsourcing risk. The Basel Committee on Banking Supervision (BCBS) has played a significant role in standardizing the understanding and management of operational risk under the Basel II and Basel III frameworks. According to Basel guidelines, banks are required to hold adequate capital against operational risk to absorb potential losses arising from operational failures. Types of Operational Risk Events: 1. Internal Fraud: Losses due to acts intended to defraud, misappropriate property, or circumvent regulations by employees. 2. External Fraud: Losses due to acts by third parties, such as hacking or theft. 3. Employment Practices and Workplace Safety: Losses arising from violations of employment laws, health and safety rules, or labor disputes. 4. Clients, Products, and Business Practices: Losses arising from unintentional or negligent failure to meet professional obligations to clients. 5. Damage to Physical Assets: Losses resulting from natural __________ _____ _______ _________ ____ _________ ______ _____ ________.
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