Regulatory Agencies and Operational Risk
At the beginning of this book, we defined operational risk as the risk of loss from inadequate or failed internal processes, people, and systems or from external events. While the Basel Committee on Bank Supervision developed this definition for financial institutions—banks in particular—the fact is that any institution with people, systems, and internal processes is exposed to operational risk. Because every institution has people, systems, and processes, every institution, including regulatory agencies, must contend with operational risk. Although regulatory agencies may suffer financial losses from some operational risks that lead to higher-than-expected budget expenditures, we are concerned here with the operational risks involving inadequate or failed internal processes or systems that could lead a regulatory agency to provide inadequate supervision of the institutions it regulates.