Physical Damage
From Open Risk Manual
Definition
Physical Damage (Also Damage to Physical Assets and Systems Risk) is the risk of unexpected financial or reputational loss from damage to physical assets owned or operated by the firm, ranging from natural disasters or other events
It is a recognized risk category in regulatory frameworks worldwide (Basel II standards).
Basel Level 2 & 3 Event Type Classification
- Disasters and other events
- Natural disaster losses
- Human losses from external sources (terrorism, vandalism)
Examples by Business Line
Types of physical damage vary by business line. An indicative list:
- Trading and Sales: Business continuity failure, damage to building and premises
- Retail Banking: Fire, floods, damage to building and premises
- Commercial Banking: Damage to building and premises, Natural disaster
- General: Natural disaster, Terrorist attack, Earthquake
Mitigation
Risks in this category can be mitigated by continuity plans, safety procedures and related employee training. Losses can also be mitigated by insurance policies
Issues and Challenges
- As with all operational risks, difficult to obtain objective measures of actual risk, both before and after the application of controls
External Links
- Operational Risk in the Basel ii framework
- Revised international capital framework is the text of the new Basel II Accord.