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proaches as well as the impact that managerial decisions may have on the operational risk profile. In market and credit risk measurement, the key managerial decisions are taken in deciding portfolio composition, thereby affecting the resulting risk profile directly and in a manner that measurement models have no problem in capturing. In operational risk measurement, on the other hand, managerial decisions may affect the risk profile in a number of different ways (through changes in control procedures, systems, personnel, to name but a few), none of which any measurement model can capture in a simple and direct way. Statistical approaches in particular will be at a loss in taking into account such changes, as historical data will reflect a risk and control environment which by and large no longer exists. The requirement of the new Basel Accord (Basel Committee on Banking Supervision, 2004) - to base risk assessment on 5 years of historical data - if taken too literally will have banks generating risk capital charges on the basis of information largely unrelated to the current and, even less, the future risk and control environment.

1.3. Research Question:

This work to start with will take a step back and ask the fundamental question of why do banks fail? Further the work shall research the recommendations of BASEL II and will try to seek the answer for: Will the BASEL II requirements make the systematic goals of safety and stability more achievable for banks/FI's? If yes, how? If no, how?

1.4. Motivation:

Appropriate “Organizational structure” is a precondition for orderly management of any activity/ group working within the purview of organizational capabilities. Operational risk management is all pervasive in terms of activities of an organization e.g. if ‘people' factor in operational management is poorly managed in a bank, other activities of the bank e.g. credit/market risk management, are likely to suffer . Similarly, legal aspects of any transaction/ function, if loosely dealt with, increases the likelihood of loss to the organization.

Organizational structure for operational risk management needs to be compact and broad-based. The structure must be compatible with :-

Ø an organization's size;

Ø complexity of operations and area of operations;

Ø in tune with its risk appetite.

The area of operational risk management is a matter of discretion which comes under the purview of regulatory authorities/banks.

Through my research I have tried out to make out a clear and concise understanding of BASEL II accord for Banks/FI's in operational risk perspective. The work shall also try to suggest the suitable customization of BASEL II recommendations and implications of the same for effectively managing operational risk. It may also lead to forecasting the emerging trends in operational risk and ways to mitigate the same.

1.5. Chapter Scheme

The chapter scheme of my dissertation is as follows:

Chapter 2: This chapter describes the literature review and the findings.

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