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Currency options trading practices and the construction and governance of operational risk

Author

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  • Habib Mahama
  • Chen Yu Ming

Abstract

Purpose - Recent failures and scandals in the banking and financial services industry have served as catalysts for anxiety about operational risk. In particular, the Basel II accord emphasises the need to develop methodologies for assessing and managing this category of risk. However, operational risk is said to be an elusive and problematic concept. This paper aims to examine how certain events in the banking and financial services industry become enframed and constructed as operational risk and how such risk is managed. Design/methodology/approach - The paper draws on the sociology of risk literature to analyse how an “unauthorised trading” event (and associated losses) that occurred in the currency options trading desk of the National Australia Bank (NAB) was enframed and constructed as operational risk. Data are gathered through metadiscourse analysis of textual materials relating to this event. Findings - The analysis reveals the social and institutional mechanisms underlying the construction of risk and the contested nature of risk knowledge. In particular, it highlights the significant role of media discourse in articulating risk claims and dominating public discourse about risk. It also highlights the moral character of the concept of risk and how the moralising of risk discourse leads to the creation of particular forms of subjectivities and the operationalisation of certain risk management rationalities in NAB. Originality/value - The paper will be helpful in improving researchers' and practitioners' understanding of how, in a given field of possibilities, particular events become constructed as operational risk.

Suggested Citation

  • Habib Mahama & Chen Yu Ming, 2009. "Currency options trading practices and the construction and governance of operational risk," Accounting, Auditing & Accountability Journal, Emerald Group Publishing Limited, vol. 22(4), pages 626-660, May.
    • Handle: RePEc:eme:aaajpp:v:22:y:2009:i:4:p:626-660
    DOI: 10.1108/09513570910955461
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    References listed on IDEAS

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    1. Claudio Ciborra, 2006. "Imbrication of Representations: Risk and Digital Technologies," Journal of Management Studies, Wiley Blackwell, vol. 43(6), pages 1339-1356, September.
    2. Rosenberg, Joshua V. & Schuermann, Til, 2006. "A general approach to integrated risk management with skewed, fat-tailed risks," Journal of Financial Economics, Elsevier, vol. 79(3), pages 569-614, March.
    3. Cummins, J. David & Lewis, Christopher M. & Wei, Ran, 2006. "The market value impact of operational loss events for US banks and insurers," Journal of Banking & Finance, Elsevier, vol. 30(10), pages 2605-2634, October.
    4. Chavez-Demoulin, V. & Embrechts, P. & Neslehova, J., 2006. "Quantitative models for operational risk: Extremes, dependence and aggregation," Journal of Banking & Finance, Elsevier, vol. 30(10), pages 2635-2658, October.
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