Operational Risk Monitoring and Control
The sampling and verification methodology is really just an application of conventional risk-assessment and quality control practices to mortgage lending and the mortgage securitization process. Looking back, a risk assessment that could have limited or even prevented the subprime mortgage crisis would have involved recognizing that bad subprime lending is a potentially catastrophic operational risk and that following the loan-quality inspection steps described in chapter 3 could have educated the market regarding the quality of the mortgages it was originating. Looking forward, a risk assessment that can limit or even prevent future lending crises involves recognizing that bad lending of any sort, performed on a large enough scale, is a potentially catastrophic operational risk.
KeywordsControl Chart Operational Risk Credit Score Loan Officer Loan Origination
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- 2.See Christopher Marshall, Measuring and Managing Operational Risks in Financial Institutions: Tools, Techniques, and other Resources (Singapore: John Wiley & Sons, 2001), 248–60Google Scholar
- 5.See Douglas Montgomery, Introduction to Statistical Quality Control, 7th ed. (Hoboken: John Wiley & Sons, Inc. 2013).Google Scholar