Global loss figures published by operational risk association ORX, reveal a decline in total gross loss across the banking community. 

This is despite the challenging environment created by both external threats, including geopolitics, cyber risk, the economy, and internal developments, particularly as the industry moves to digitalise.    

In 2021, 85,585 operational risk loss events were submitted totalling €20.3 billion in gross losses. 

The report trends reveal:  

  • Lower total gross loss: since 2016, the total gross loss has decreased on average by €2bn per year, contributing to a total drop of €10bn between 2016 and 2021.
    Since 2016, gross loss as a percentage of income has also decreased – with the lowest value coming in 2021 at 1.5%.
  • Higher total number of events: annual loss frequency did increase in 2021 with 30,000 more loss events submitted than in the previous year and 16,500 more events submitted in 2021 than in 2016.
    However, some of this upward trend can be attributed to regional idiosyncrasies with event reporting in Latin American countries linked to employment practices and workplace safety
  • Size of average risk loss event: the average size of an operational risk loss event in 2021 was €237,000, a significant drop from 2016’s annual average of €436,500.
  • Percentage of total gross loss by top ten largest loss events: over the last six years, the percentage of the top ten largest loss events ranged between 20-40% of the total gross loss.
    This remained consistent in 2021 with the ten largest losses accounting for €5.9 billion, or 29% of the total gross loss.  

In 2021, bank business lines incurred the largest proportion of total losses (57%), followed by trading and investment business lines (22%), corporate losses (14%), and other business lines (8%).

“This year we’ve seen the continued trend of lower gross loss, although we have seen the increase in the number of events reported,” Steve Bishop, research and information director at ORX, said.

“Given the levels of change facing global banks and the turbulent external environment, it will be interesting to see if the reduction in gross loss continues through 2022. 

“Next year’s results may well reflect the impact from the Ukraine conflict, particularly related to cyber security and economic turbulence linked with global security and supply issues.”  

Coronavirus pandemic 

The onset of the pandemic altered the operational risk landscape and the risk profiles of financial institutions.   

ORX began tagging coronavirus-related losses in 2020 and since then 60% of ORX banking members have submitted related loss events with a total event gross loss of €3.4 billion. 

These banks reported 568 coronavirus events during the period to end 2021 with a median gross loss of €136,000. 

The latest report from ORX shows that losses tailed off as the world has returned to a more normal state with necessary longer-term changes, such as a hybrid working environment, having become part of business as usual. 

External fraud 

There was a significant spike in losses last year, with losses for 2020 reaching €5.5 billion, more than double the figure seen in 2019. 

This increase shows the impact the pandemic had on the risk profiles of banks. 

However, external fraud losses have now reduced, and the number is in-line with previous years at €2.4 billion. 

Conduct risk 

In 2021, conduct risk remained a key concern for financial institutions and an area of strong regulatory focus, not least because this risk type can cause large losses to financial institutions.  

Banks reported over 10,000 conduct events in 2021, amounting to €4.4 billion in gross losses.