Security

Operational Risk And FDI In The Banking Sector

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Executive Summary

In general, the academic literature has paid its attention to market risk and credit risk and ignored operational risk, an "Umbrella" term that includes problems with information systems, operational problems, breaches in internal control and fraud, or unforeseen catastrophes such as 9-11 or SARS. The negative impact of operational risk on banks net profit, lead to the conclusion that operational risk is to be considered one of the key drivers for future profits. Analyzing information provided by financial institutions and empirical experience, the paper concludes that not only there is a strong connection between the FDI and operational risk but the link between the two has a double sense of "Incentive-effect", one is influenced by the other and vice-versa.

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