Establishing a Formal System of Internal Controls for Modeling Operational Risk
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Date: 03-07-2005
Start Time:
6:00pm
End Time: 7:30pm
Speaker: Peter Vinella and Jeanette Jin, PVA International
Location: 412 Shapiro CEPSR, Davis Auditorium
ABSTRACT
The two most common approaches to modeling operational risk, the macro-level loss/loss event analysis advocated by Basel II and the controlled self-assessments proposed by COSO, both present tremendous practical limitations to the typical financial institutions. While intuitive, both fail in practice because they ignore the size, complexity, and uniqueness of average financial operation. Here, a formal Internal Control System is proposed supporting a rigorous theory of operational risk. First all overall Internal Control framework is presented which identifies the drivers of individual controls as well placing them within the context of strategic imperatives of the institution. Next, a structured classification system and ontology is developed which leads to a formal definition of internal control performance. This is followed by redefining operational risk in terms of the performance of the various internal controls and overall internal control system. Finally this new definition of operational is shown to be a generalization of Basel II definition and consistent with both Basel II and COSO.
BIO
Peter Vinella
Mr. Vinella is the founder and CEO of PVA International
Inc., a NY-based consultancy focusing on capital markets and risk management
issues. All told, Mr. Vinella has worked in the financial services industry for
over 20 years in a wide variety of roles including senior trading and management
positions at Drexel Burnham Lambert and Smith Barney.
Mr. Vinella is
frequently quoted in the lay press including New York Times, the LA Times, the
International Herald Tribune, US News and World Report, the Wall St. Asian
Report as well as numerous industry journals. He also appeared on ABC Nightly
News With Peter Jennings with regards to the vulnerability of the financial
system to terrorist attacks and author an Op Ed piece in the New York Times
about program trading.
Mr. Vinella has published over 50 articles
covering a wide-range of topics and has spoken at numerous public presentations
including testifying before the House Subcommittee on Finance regarding the use
of derivatives and the regulation of the derivatives markets. Testimony
regarding the vulnerabilities of the financial system in light of September 11th
authored by Mr. Vinella was also read into the congressional record. This
subsequently led to extensive work with the General Accounting Office during
their investigation of the tragedy.
Along with Jeanette, Mr. Vinella is
the co-author of "Corporate Governance and Operational Risk Management: A
Practical Guide", due out in the Spring of 2005, J. Wiley & Sons,
publisher.
Prior to entering finance, Mr. Vinella was Junior Research
Fellow at the National Aeronautics and Space Administration (NASA), senior
mathematician at Data Dynamics, a DOD contractor, and an Assistant Professor of
Mathematics at California State University at Hayward. Mr. Vinella has degrees
in Applied Mathematics from the University of California,
Berkeley.
Jeanette Jin
Dr. Jin is President of PVA International.
She is an accomplished expert in securities, finance, and risk management with
over ten years of Wall Street experience. Prior to coming to PVA, Dr. Jin was a
Vice President at Chase Securities and Smith Barney, where she was a senior
member of the Mortgage-Backed Securities research group, performing extensive
modeling of prepayment risk for both trading desks and customers. She also
served as an instructor for the Departments of Finance at Drexel University and
Rowan College, where she taught investment and economic theory.
Dr. Jin holds her MS and Ph.D. degrees in Finance from Drexel University Graduate School of Business and participated in the Masters Program in Information Science. Dr. Jin has co-authored several publications in financial journals on volatility in capital markets and Euro-currency markets.