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https://www.mckinseyquarterly.com/Managing_operational_risk_in_banking_1519 FEBRUARY 2005 Operational risk is a financial institution's exposure to losses arising from mistakes (such as computer failure and breach of regulations) and conspiracies (including loan fraud and embezzlement) that affect its day-to-day business. Banks generally calculate their operational-risk cover by estimating the probability that a particular event might occur and the resulting financial losssuch as the fine for breaking a rule or the sum pocketed by an embezzler. But operational crises also upset shareholders and can lead to a decline in market value. The most harmful ones were embezzlement, loan fraud, deceptive sales practices, antitrust violations, and noncompliance with industry regulations. What triggers a risk crisis? About half of the operational-risk events in our sample arose from negligence, an unintentional failure to meet a professional obligation, or a defect in the nature or design of a productproblems that are largely within the institution's control. In particular, these issues stemmed from improper business and market practices, such as breaking antitrust rules, and from equally preventable lapses, such as using deceptive sales practices or concealing a product's characteristics. External and internal theft and fraud were responsible for 20 percent and 14 percent of risk events, respectively, while 8 percent were caused by process failures, particularly in monitoring and reporting.