BANK OPERATIONAL RISK MANAGEMENT

SHE Level 5
SCQF Credit Points 15.00
ECTS Credit Points 7.50
Module Code MMN326566
Module Leader Chioma Nwafor
School Glasgow School for Business and Society
Subject Finance and Accounting
Trimesters
  • B (January start)
  • A (September start)
  • C (May start)

Pre-Requisite Knowledge

Knowledge UK Honours Degree or Equivalent

Summary of Content

This module aims to develop the student's knowledge and understanding of the underlying principles of operational risk management in a clear and concise way. Students are exposed to the elements of operational risk management. In this course, we will examine the nature of operational risk as an Enterprise-Wide Risk, how to calculate operational risk capital under the Basel Capital Framework. In addition to a number of contemporary issues in operational risk management, students will also be introduced to the three key themes of operational risk taxonomy namely; Cause-Driven, Impact-Driven, and Event-Driven, as well as the mitigation and Assurance methods for managing operational risk(s). Students will also be exposed to different trading techniques and trading strategies used by investment banks.

Syllabus

-357 1. Introduction to Operational Risk 2. The Elements of Operational Risk Framework 3. Risk and Control Assessment 4. Operational Risk Events and Losses including reporting threshold, external loss databases amongst others -360 5. Understanding Probability Distribution -357 6. Operational Risk under Basel II & III Risk Measures and Capital Allocation 7. Understanding and Modelling OpRisk Capital and VaR using The Loss Distribution Approach 8. Operational Risk Stress Tests and Scenarios 9. Mitigation and Assurance: Business Continuity and Insurance 10. Internal Audit: The Third Line of Defence 11. Introduction to Global Operation's Management: Trading Techniques 12. Contemporary Issues in Operational Risk Management

Learning Outcomes

On successful completion of this module, students should be able to:1) Critically discuss the role of operational risk management within the enterprise wide risk framework;2) Discuss the core elements of operational risk framework;3) Discuss the need for stress-testing operational risk capital as well as main constituents of a stress test framework;4) Evaluate the Basel II and III models of operational risk capital and the modelling of operational risk capital under the BASEL framework;5) Understand Basel II operational risk events types and business lines;6) Demonstrate a critical awareness of stress tests and scenarios analysis7) Discuss the different methods of managing and mitigating operational risks including Business Continuity, Insurance, and Internal Audit- the Three Line of Defence.8) Demonstrate a critical awareness of different trading techniques;9) Analyse the global operations of banks and demonstrate good understanding of the trading cycle and settlement/ clearance; amongst others.

Teaching / Learning Strategy

The learning and teaching strategy uses a blended approach of lectures, labs and directed learning supported by GCULearn . Lectures will provide the principal mechanism by which key themes are presented and the bank operation's lab sections will provide the medium for teamwork and gaining practical skills through the use of Excel and @Risk to explore the lecture themes in more details. Spreadsheet solutions and solutions to quantitative questions will be available on GCULearn . All students will be directed to further reading to support the theoretical and practical content of the module. Students will be required to research selected web-based materials and other sources to prepare for the seminars and lab sessions. This course is supported by the GCULearn website. Documents on the GCULearn will normally be in Power Points, if you require course materials in an alternative format due to a visual disability, you should please contact the module leader. Students can download the module handbook from the GCULearn . The Module Handbook can be found under the 'Module Overview ' section and the lecture materials can be found under ' Learning Resources' sections of GCULearn. This module requires advance preparations, students are expected to preview the lecture notes on GCULearn before lectures. Feedback strategy - aims Students will be provided with feedback within three weeks of submission. The feedback that they receive is designed to: A: Facilitate the development of self-assessment; B: Encourage dialogue; C: Clarify good performance; D: Provide opportunities to close the gap between current and desired performance; E: Deliver high quality information about individual learning; F: Encourage positive motivational beliefs and self-esteem; G: Provide information to teachers that can be used to help shape the teaching. In order to achieve these aims, the following strategies will be adopted by this module: A: Facilitating the development of self-assessment: The assessment requirements will be discussed in the introduction to the module. Students will be asked to reflect on the standard of their work. B: Encouraging dialogue: Students are encouraged to discuss their comments with lecturers, arrange meetings with academic advisors to review performance. C: Clarifying good performance: Students will be provided with information about marking criteria. They will also be provided with examples of assessments to review in order to identify and clarify good performance (as per A). D: Providing opportunities to close the gap between current and desired performance: Students may find it helpful to identify actions points based on the feedback they have received. E: Delivering high quality information about individual learning: Feedback will be provided within 3 weeks of submission, covering strengths, weaknesses and corrective advice. F: Encouraging positive motivational beliefs and self-esteem: Feedback will be designed to encourage and be constructive. G: Providing information to teachers that can be used to help shape the teaching: Students, if they wish, may identify where they are having difficulties when they hand in their assignments.

Indicative Reading

-360 1. Blunden, T., (2013): Mastering Operational Risk: A Practical Guide to Understanding Operational Risk and How to Manage It 2. Marcelo G. Cruz, Gareth W. Peters, and Pavel V. Shevchenko, (2015): Fundamental Aspects of Operational Risk and Insurance Analytics: A Handbook of Operational Risk -360 3. Fleuriet M. (2008) Investment Banking Explained: An Insider's Guide to the Industry. McGraw-Hill. Newspapers and Magazines : -360 1. The Financial Times. 2. The Wall Street Journal. 3. The Daily Telegraph 4. The Times 5. The Banker Financial World 6. Euro money 7. The Economist 8. Forbes Fortune Business Week Journals: -360 1. Journal of Operational Risk 2. Journal of Risk and Uncertainty 3. The Journal of Financial Services Research 4. Journal of Finance 5. Journal of Forecasting, 6. Journal of Banking and Finance 7. The Journal of Operational Research Internet sites : European Central Bank: www.ecb.europa.eu <http://www.ecb.europa.eu> . Bank for International Settlements: www.bis.org <http://www.bis.org> Bank of England: www.bankofengland.co.uk <http://www.bankofengland.co.uk> British Bankers Association: www.bba.org.uk <http://www.bba.org.uk> Chartered Institute of Bankers: www.charteredbanker.com <http://www.charteredbanker.com> Financial Times: www.ft.com <http://www.ft.com> Economist: www.economist.com <http://www.economist.com> Financial Conduct Authority: www.fca.gov.uk <http://www.fca.gov.uk> Wharton Financial Institutions Center: <https://fic.wharton.upenn.edu/> , The Institute of Operational Risk <https://www.ior-institute.org/> .

Transferrable Skills

This module will develop the following skills in a manner that encourages independent initiative and critical thinking: -360b7 Leadership and interpersonal skills -360b7 Oral and written communication skills b7 Data gathering, analysis and interpretation b7 Use of Excel for data analysis b7 Use of @Risk for modelling uncertainty b7 Problem Solving and Critical Thinking b7 Ability to Work Independently b7 Research Skills in Order to Complete the Coursework

Module Structure

Activity Total Hours
Seminars (FT) 8.00
Assessment (FT) 30.00
Independent Learning (FT) 85.00
Lectures (FT) 24.00
Practicals (FT) 3.00

Assessment Methods

Component Duration Weighting Threshold Description
Continuous Assessment n/a 60.00 45% Continuous Assessment (online tests in week 4,8 and 12) Unseen written online MCQs
Coursework n/a 40.00 45% Coursework Report based on topics from the syllabus. 1500 words