When a bank fails to process transactions due to employee absence, it signifies what type of risk?

When a bank fails to process transactions due to employee absence, it signifies what type of risk?

• A. Operational Risk
• B. Credit Risk
• C. Fraud Risk
• D. Systemic Risk

Answer: (A)

The situation described, where a bank's failure to process transactions is attributed to employee absence, highlights operational risk. Operational risk refers to the potential for loss resulting from inadequate or failed internal processes, people, and systems. This includes issues stemming from human error, system failures, or disruptions in normal operations. In this case, the absence of staff directly impacts the bank's ability to perform its essential functions, leading to transaction failures. Such circumstances underline the importance of staffing, training, and the implementation of robust operational procedures, all fundamental components in managing operational risk effectively. The other types of risks mentioned, such as credit risk, fraud risk, and systemic risk, address different aspects of banking and finance. Credit risk involves the potential loss due to a borrower's failure to repay a loan, fraud risk concerns the loss from fraudulent activities, and systemic risk refers to the risk of collapse of an entire financial system or market, rather than the internal dysfunction of a specific bank.

The situation described, where a bank's failure to process transactions is attributed to employee absence, highlights operational risk. Operational risk refers to the potential for loss resulting from inadequate or failed internal processes, people, and systems. This includes issues stemming from human error, system failures, or disruptions in normal operations.

In this case, the absence of staff directly impacts the bank's ability to perform its essential functions, leading to transaction failures. Such circumstances underline the importance of staffing, training, and the implementation of robust operational procedures, all fundamental components in managing operational risk effectively.

The other types of risks mentioned, such as credit risk, fraud risk, and systemic risk, address different aspects of banking and finance. Credit risk involves the potential loss due to a borrower's failure to repay a loan, fraud risk concerns the loss from fraudulent activities, and systemic risk refers to the risk of collapse of an entire financial system or market, rather than the internal dysfunction of a specific bank.