What is Operational Risk? What is its relevance for banks? Discuss the Principles of Operational Risk Management.

Operational risk refers to the risk of loss resulting from inadequate or failed internal processes, systems, people, or external events. Unlike other forms of risk such as credit risk or market risk, operational risk is related to the day-to-day activities of the bank, rather than the result of financial market fluctuations or borrower defaults. It encompasses a wide range of potential threats including fraud, technological failures, natural disasters, legal risks, and human errors. For banks, this type of risk can have serious implications, including financial losses, reputational damage, and regulatory penalties. Therefore, operational risk is a key component of risk management in banking institutions.

The relevance of operational risk in banks lies in the fact that financial institutions are highly complex entities that rely on efficient operations and a variety of interconnected systems. A ____ ____ ___ _________ ___ _________ _____.
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