CORES Loss Data Collection & Analysis 4

Question 1

Which external loss database consortium is most widely used by large financial institutions for benchmarking operational risk losses globally?

Accepted Answer

Operational Riskdata eXchange (ORX)

Answer

ORX is the largest operational risk loss data-sharing consortium, providing anonymized industry loss data used for benchmarking and tail-risk estimation.

Question 2

When scaling external loss data to fit an institution's risk profile, which size proxy is most commonly used?

Accepted Answer

Gross income

Answer

Gross income is the standard scaling factor for adjusting external loss data, aligning with the Basel Standardized Approach's use of gross income as a risk proxy.

Question 3

A risk manager notices that loss events in the 'Execution, Delivery & Process Management' category consistently spike in January. What is the most operationally reasonable explanation?

Accepted Answer

Year-end processing errors identified and recorded in the new year

Answer

Year-end operational errors in reconciliation, settlement, or reporting are frequently discovered and booked in January, creating an apparent spike.

Question 4

Which approach involves estimating losses from scenarios that have not yet occurred, supplementing historical internal and external loss data?

Accepted Answer

Scenario analysis

Answer

Scenario analysis uses expert judgment to estimate plausible but unobserved loss events, filling gaps where historical data is absent.

Question 5

Under the Basel III Standardized Approach for operational risk (SA), which loss component most directly replaces the need for a detailed internal loss database for regulatory capital?

Accepted Answer

The Internal Loss Multiplier (ILM)

Answer

The Internal Loss Multiplier adjusts the BIC upward or downward based on a firm's historical loss experience, directly linking the loss database to regulatory capital.

(CORES) Certified Operational Risk Executive Specialist Practice Test

(CORES) Certified Operational Risk Executive Specialist Practice Test

CORES Loss Data Collection & Analysis 4