What does that take? Let's reframe the core components of operational risk – people, process, and technology – using a resilience lens.15 People are resilient when they are ready and able to adapt to change by adjusting priorities, replanning, and refocusing activities and resources. Resilient staff work with shared purpose across organizational siloes, operate effectively in environments of uncertainty and ambiguity, and are empowered to develop creative and innovative solutions. Processes are resilient when they are robust to changing internal and external conditions, including issues with suppliers, inputs, processing, outputs, and customers. Resilient processes provide clear signals of their operating state, have the right level of automation, and continue to function under stress. Technology systems are resilient when they are flexible, robust, and able to be recovered rapidly. And then the overall organization is resilient when these three components – people, process, and technology – work together effectively. Resilient processes and technology should support the ability of the staff to successfully manage in normal times and during disruptions. What are some concrete steps to strengthen resilience? In terms of processes, an important first step is to identify the processes that are critical to achieving organizational objectives. Gains are often found through simplification and automation of manual processes, especially when combined with performance metrics and risk metrics that provide real-time measures of process health.16 For technology, modernizing technology and software development processes can be a key area of focus.

After the Lehman collapse, central banks implemented far-reaching unconventional monetary policy measures, first by setting up liquidity facilities and then, for some of them, by undertaking large-scale asset purchase programmes. Measuring the propagation of these policies on our economy is a challenge. Unconventional policies are typically announced in order to respond to specific economic and financial conditions. They are endogenous. And disentangling their effects from those induced by other economic and financial factors can be very difficult. Empirical studies of the effects non-conventional policies, including pioneering studies by Anne Vissing-Jorgensen, have proceeded through so called “event studies”. This approach consists of measuring the response of asset prices the day when a given measure is announced. The “identification” problem is solved in the sense that reactions by interest rates and asset prices on the day when a central bank announced a new non-conventional measure are indeed very likely to the caused by the announcement. This literature has for instance showed that the effects of the so called Large Scale Asset Purchase programs of the Federal Reserve. “QE1”, launched in 2009, and “QE3”, launched in 2012, had larger effects on US long-term interest rates than the 2010 “QE2” program. Another insightful result from this literature, which is presented this morning by Simon Gilchrist, is the differential effects of these policies on credit risk. LSAP programmes have reduced the non-financial sector’s default risk, but they had a very limited impact, if any, on the default risk specific to the financial sector.