Not So Splendid Isolation: Operational Risk Model Risk

Model risk has become a more prominent subject in recent years, following the failure of numerous risk models to prevent the financial crisis. While financial institutions are attempting to reduce model risk across all risk disciplines, model risk is particularly acute for operational risk for a number of reasons.

The chief cause is that operational risk is not as mature a field as other risk disciplines. There is no commonly accepted benchmark model and financial institutions have developed