Against the Gods

This chapter discusses various risks of financial markets. Understanding the risks in financial markets involves examining the case studies of when, how, and why a risk manifests itself.. Currently, supervisors and the banking industry have recognized the importance of operational risk in shaping the risk profiles of financial institutions. Developments such as the use of more highly automated technology, the growth of e-commerce, and large-scale mergers and acquisitions that test the viability of newly integrated systems, all suggest that operational risk exposures may be substantial and growing. This recognition has led to an increased emphasis on the importance of sound operational risk management at financial institutions and to greater prominence of operational risk in banks' internal capital assessment and allocation processes. There has been a significant shift in the regulatory and best practice approaches in the industry. Organizations of all types have operations teams that handle a wide variety of functions and processes and also develop procedures to control the efficiency and any risk associated with the processes. Other areas of the business manage nonoperational risks that a business could face so that for instance market risk issues are managed by management teams, compliance and to some extent audit.