Introduction

As shown in the previous chapters of this book, financial risk management in central banking has come a long way. Managing non-financial risks is to a large extent the new frontier.

Central banks face a very wide array of non-financial risks. A few of them, in particular those related to reputation, have actually an importance which is difficult to oversee or overstate. Still, while very significant effort and progress has been made during the past twenty years to provide tangible solutions for the most pressing and visible concerns related to information security, physical security or business continuity, the broader topic of operational risk management (ORM) has stayed in a relative stage of infancy. In recent times, however, unprecedented forces have spurred a new wave of ORM initiatives. In an era where they encourage commercial banks to improve risk management in general and ORM in particular, central banks are more than ever committed to enhance their own competency and demonstrate that they fully practice what they preach. Faced with reinforced scrutiny on the use of public money, they strive to overcome their traditional bias towards risk aversion and further embrace values of effectiveness and efficiency through formal ORM frameworks and explicit risk tolerance policies. Last but not least, in a complex and uncertain new business environment featuring integrated financial markets and infrastructures, digital convergence and development of web-centric applications, and more generally emerging threats of the era of globalization (e.g. international terrorism, criminality or pandemic issues), central banks are resolutely starting to take a fresh and comprehensive look at the key non-financial risks which may compromise their ultimate objectives.