Quantification of Operational Risks in German Banks as an Element of National Security
Quantification of Operational Risks in German Banks as an Element of National Security

Summary/Abstract: Risk management is a central pillar of modern banking, serving market-driven objectives, regulatory requirements aimed at safeguarding financial stability and national security alike. Within this framework, operational risk (OpRisk) represents one of the four major risk types alongside credit, market, and liquidity risk. This paper examines how German banks can quantify OpRisk for the purpose of economic risk-bearing capacity as an element of national security. Building on regulatory foundations such as MaRisk and the Basel framework, two key data sources are emphasized: historical loss databases and forward-looking risk assessments. Their combined use allows banks to capture both past events and potential future risks. For quantification, the loss distribution approach is applied, separating frequency and severity distributions and aggregating them through Monte Carlo simulation to derive a comprehensive loss distribution. Additional structuring into business lines and event categories enables granular modelling and the incorporation of dependencies through correlation assumptions. The study illustrates an exemplary, though widely established, methodology that provides banks with a statistically sound basis for determining Value-at-Risk at a 99.9% confidence level and integrating it into risk-bearing capacity calculations. While variations in implementation remain, the model demonstrates how quantitative methods can strengthen operational resilience and contribute to systemic stability as well as national security.

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