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CMA Final · Risk Management in Banking and Insurance · Operational Risk and Off-Balance Sheet Risk

Under the Basel framework, which of the following is a correct example of an operational risk event category?

Loss from an external fraud such as a cyber-attack is an operational risk event, because Basel defines operational risk as loss from failed processes, people, systems or external events. The other options describe credit, market and liquidity risk respectively.

  1. ALoss caused by a borrower defaulting on a term loan
  2. BLoss from a fall in the market price of government securities held for trading
  3. CLoss arising from an external fraud such as a cyber-attack on the bank's payment systemsCorrect
  4. DLoss because the bank cannot meet withdrawals without selling assets at a discount

Explanation

Basel defines operational risk as loss from inadequate or failed internal processes, people and systems, or from external events. External fraud, including cyber-attacks, is a named event type. Borrower default is credit risk, price fall is market risk, and inability to meet withdrawals is liquidity risk.

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