Operational risk came into prominence during the global financial crisis (GFC) due to:
A)Lehman Brothers using 'recycled collateral' to expand their funding beyond on-balance-sheet assets
B)the classification of 'sophisticated investors' led to investment banks not providing material information about the riskiness of derivative transactions
C)the credit default swap market was likely to cause systemic market risk due to difficulties in settling out trades with distressed or failed counterparties
D)All of the listed options are correct.

Question

Quizplus · Accepted Answer

All of the options listed are correct and contributed to the prominence of operational risk during the global financial crisis. Lehman Brothers' use of "recycled collateral" and investment banks' failure to provide material information to "sophisticated investors" both highlighted issues with transparency and accountability, while the credit default swap market created difficulties with settling trades and led to systemic market risk.

Operational Risk Came into Prominence During the Global Financial Crisis