A4 für Copyshop GB.indd - Bayerische Landesbank

Operational risk
BayernLB defines operational risk (OpRisk) as the risk of an unexpected loss occurring
as a result of human error, a process or control deficiency, a technical failure, a disaster
or any negative external factor. OpRisk also encompasses legal risks.
BayernLB has a central, independent OpRisk controlling unit which is entrusted with
the task of guiding the Group on all methods, processes and systems relating to
OpRisk controlling and management. Management of operational risks is the responsi-
bility of the individual local OpRisk management units of the business areas and sup-
port operations.
The OpRisk controlling unit compiles operational loss data on a continuous basis as
part of an institutionalised reporting system. It also conducts qualitative assessments
in the business areas and support operations, calculates the operational Value at Risk
(OpVaR) using a special simulation technique known as Monte Carlo simulation, based
on historical internal and external loss data, and reports to the Board of Management
and the business areas and support operations. The report encompasses data on the
loss situations of major subsidiaries / participations.
During 2004, in the interest of early detection, risk indicators for operational risk were
introduced. These are known as key risk indicators, and are allocated to the core areas
of personnel (e.g. overtime factors, fluctuations), risk management (e.g. exceeded lim-
its), IT (e.g. number of virus alerts) and transactions (e.g. cancellations / queries).
In 2004, the expected operational loss amounted to EUR 5.8 million at Bank level, com-
pared to EUR 7.6 million in the previous year. The OpVar peaked at EUR 262 million,
compared to the previous year’s value of EUR 440 million, but had fallen to EUR 182
million by year-end. This decline can be attributed to the significant downward trend
in losses. Thus, in 2004, losses were down 49 percent to EUR 1.29 million. Losses of
EUR 2.09 million were reported at Group level.
In the area of legal risk, the EU state aid proceedings in relation to the transfer of capi-
tal through the Free State of Bavaria in the form of special housing construction funds
has been resolved.
Major developments in 2005 will include a data consortium aimed at improving the
data basis for calculating OpVaR, and offering the opportunity of loss benchmarking
together with members of the Association of German Public Sector Banks, as well as
ongoing development of business continuity planning and reduction of the required
OpRisk capital by targeted use of insurances.
Report on the Bank and the Group
} Definition
} Controlling
} Reporting
} Development
of risks
} Legal risk
} Outlook
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