Operational Risk Disclosure in Financial Services Firms

Guy Ford*, Maike Sundmacher, Nigel Finch, Tyrone M. Carlin

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingChapter

6 Citations (Scopus)

Abstract

Although there have been substantial developments in financial reporting over recent years, the reporting of risk in statutory reports is still very much evolving. This comes as no surprise, given numerous definitions and subsequent measures of risk. In the financial services sector, the industry standard for risk disclosure is value at risk (VaR), but this applies only to a relatively small proportion of financial service sector risk-this being market risk in trading activities. Although operational risk has been at the core of the collapse of a number of financial services firms over recent years, there are no formal reporting standards for operational risk. Further, the Basel Committee's requirements on operational risk disclosures are qualitative. This chapter examines the structure, form, consistency, and usefulness of risk disclosures by international banks, with a primary focus on operational risk disclosures. The information uses a large sample of international banking institutions. We find that the quantity and quality of operational risk disclosures vary significantly across institutions. The disclosures are predominantly descriptive and, in their current form, of little use to users of financial statements for the assessment and comparison of risk across institutions.

Original languageEnglish
Title of host publicationOperational Risk toward Basel III: Best Practices and Issues in Modeling, Management, and Regulation
PublisherJohn Wiley & Sons
Pages381-395
Number of pages15
ISBN (Print)9780470390146
DOIs
Publication statusPublished - 29 Nov 2009

Keywords

  • Accounting standards
  • Cash flow
  • Financial services firms
  • Market risks
  • Operational risk

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  • Cite this

    Ford, G., Sundmacher, M., Finch, N., & Carlin, T. M. (2009). Operational Risk Disclosure in Financial Services Firms. In Operational Risk toward Basel III: Best Practices and Issues in Modeling, Management, and Regulation (pp. 381-395). John Wiley & Sons. https://doi.org/10.1002/9781118267066.ch18