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Challenges and Possible Solutions in Enhancing Operational Risk Measurement

September 2000
Toshihiko Mori
Junji Hiwatashi
Koukichi Ide

Papers in the Financial and Payment System Office Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of Bank of Japan or the Financial and Payment System Office.

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Introduction

We presented our Working Paper Series No.1 (WPS1) "Measuring Operational Risk in Major Japanese Banks" on the web-site of Financial and Payment System Office of the Bank of Japan in July 2000. The purpose of this paper (WPS3)1 is to summarize the responses we have received on our earlier paper (WPS1) and to delineate our thoughts on those comments. Our thoughts are based on best practices and methodologies regarding how to measure market and credit risks.

After our first paper was put on the web-site, we received a lot of comments and questions on the paper. These comments and questions indicate that method of operational risk measurement is not only developing at present but also going to be enhanced in an accelerated pace in the near future. In order to make this momentum more robust and secured, we believe that it is important to share views on operational risk measurement among regulators, banks, and related industries. Thus, we welcome any further comments or questions on our papers (WPS1 and WPS3). We will answer these questions on the paper (WPS1) as much as possible.

  1. We received useful comments from our colleagues: Messrs. Hirotaka Hideshima, Eiji Harada (Financial and Payment System Office) and Hiroshi Ashida (Bank Examination and Surveillance Department).