II     Risk Management

Financial institution management should understand and evaluate risk across the institution, including the definitions and categories of risk. Risk is the potential that events, expected or unanticipated, may have an adverse effect on a financial institution's earnings, capital, or reputation. For regulatory purposes, risk is categorized as operational, liquidity, interest rate, credit, price, reputation, strategic, and compliance (legal). Although financial institution management should be aware of all potential risks as part of its overall risk management program, operational risk is the primary risk associated with IT.


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II.A Operational Risk