Saturday, March 14, 2009

operational risk

In an ideal world , everything always goes according to plan .system always work and do the jobs they were designed for .documentations is always alegally watertinght and is properly completed .frauds are perpetrated on other people and are readily identifiesd before they can effect you .
murphy is law says that if something can go wrong , it will . systems can fail and vital information lost if not properly backed up . afire could destroy important security documentation if it is not properly protected .There is arisk involved simply in trying to ensure that things happen in the way they are intended to this is known as operational risk .
errors or omissions in documents can prove very costly . An assumption that a contract is legally enforceable underpins many credit decisions . But what if there is amisunderstanding or ignorance as to the meaning or significance of aclause or adocument? the whole basis of alending judgment can be proved wrong . failure of security documentation to prove enforceable when it is needed is abig cause of loss to lenders . these losses appear as credit losses in the bank is bad debt figures but are realy the result of operational failures .
It is the lucky lender who has avoided coming into contact with aborrower who has fraud in mind . borrowing money with the intention of running off with it and no thought of repaying is awell-established way of stealing relatively large sums .
fraudsters will target inexperienced lenders and use lies and misrepresentations to create an apparently viable lending proposition If alender parts with money without making the necessary level of enquiry into the borrower is bona fides and without controlling the lending with asufficient degree of diligence , then large losses will result .

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