Operational risk The Federal Reserve System is also conducting selected reviews for operational risk at community banks. By operational risk, I mean “the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events,” which is the definition used by the Basel Committee on Banking Supervision.
At the Federal Reserve, we are placing an increasing focus on operational risk. In part, this is due to the significant improvements we have seen in the last two decades in interest rate and credit risk management. Thus, weaknesses in governance and internal controls and operational risks become more apparent.