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FRM Part II · FRM Exam Part II · Risk Measurement and Assessment

A bank's cyber attack caused a system outage. Direct costs were: restoration of systems 2.0 million, customer compensation 1.5 million, and a regulatory fine 0.5 million. The bank also lost 3.0 million of expected trading revenue during the outage, and an insurer reimbursed 1.0 million of the restoration cost. Under common operational risk loss data conventions, where lost opportunity revenue is excluded and recoveries are tracked separately, what are the gross and net loss amounts to record?

Gross loss is 4.0 million, the sum of restoration, compensation and fine, and net loss is 3.0 million after the 1.0 million insurance recovery. Lost expected trading revenue is an opportunity cost and is excluded from recorded operational loss under these conventions.

  1. AGross 4.0 million; net 3.0 millionCorrect
  2. BGross 7.0 million; net 6.0 million
  3. CGross 4.0 million; net 4.0 million
  4. DGross 3.0 million; net 2.0 million

Explanation

Gross loss before recoveries = 2.0 + 1.5 + 0.5 = 4.0 million; the 3.0 million lost revenue is an opportunity cost and is excluded. Net loss = 4.0 - 1.0 insurance recovery = 3.0 million. Including the lost revenue gives the 7.0 and 6.0 distractor.

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