r jayamaha : basel ii and operational risk keynote address by dr r jayamaha, deputy governor of the central bank of sri lanka, at the 10th seacen - fsi regional seminar for bank supervisors and regulators, colombo, 12 december 2005. * * * it is indeed an honour to have been invited to deliver the keynote address at this seacen - fsi regional seminar for bank supervisors and regulators on the implementation of basel ii and operational risk. i would like to take this opportunity to share some thoughts on this important subject, which is currently engaging the attention of the bank regulators, not just in our region, but worldwide. i will first deal with why basel ii requires a separate capital allocation for operational risk and what it intends to accomplish. next, i will discuss how basel ii deals with operational risks and how it contributes to financial system stability. finally, i wish to mention a few steps regulators can take in preparation for adopting basel ii and mitigating operational risk. 2. deregulation and globalization of financial services, together with the growing sophistication of financial technology are making the activities of banks and their risk profiles more complex. in this context, not only well known credit, interest rate and market risks, but also other risks can be substantial and threaten the stability of a financial system. a growing number of high - profile operational losses worldwide have led banks and supervisors to increasingly view operational risk as an integral part of risk management policy. management of specific, more common or day - to - day operational risks is not a new practice ; it has always been important for banks to prevent fraud, maintain the integrity of internal controls and reduce errors in data transaction processing, ensuring the availability of information technology infrastructure and their back up systems when needed. more often than not, operational risks are taken as given and very little attention has been paid to it. operational risk is intrinsic to financial institutions and it should be an important component of their firm - wide risk management systems. however, operational risk is harder to quantify and model than market and credit risks. operational risk differs from other banking risks. it is a risk that is not willfully incurred in return for an expected reward but is implicit in the ordinary course of banking business and has the potential to affect the risk management process. however, ignorance of operational risks or failure to properly manage such risk can result in a misstatement of an institution's risk profile and expose the institution to significant losses. such institutions can become a regulatory

government approach to recovery, we expect the philippines to move back to our pre - covid development path soon. the worst is behind us. the recovery phase has begun. now, the philippines is starting to write its post - covid narrative, which in the near future will speak of a remarkable rebound. as an active member of the international community, we are happy to share the things that we do to thrive, as much as we are willing to learn from and work with the rest of the world. thank you very much for listening. i wish everyone a productive conference. 3 / 3 bis central bankers'speeches