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MD&A 2Q09

8.1.4 Operating Risk


In the Banco do Brasil, the risk management structure is compounded by the Risk Management Diretorship, the Internal Controls Directorship and the Security Management Directorship, according to the CMN Resolution 3,380, that regulates the implementation of the operacional risk management structure.

To fulfill the Basel II implementation schedule, pursuant to the Communicate 16,137, wich determines the use of advanced internal models for risk management from 2013 on, the Bank has been developing actions in order to adopt internal models for risk management and to fulfill what is stabilished by the regulator.

To manage operational risk, Banco do Brasil is adherent to the Best market practices and monitores operational losses by key risk indicators, operational loss exposition limits and systematized internal data base.

At BB’s website, in the Investor Relations website, more details about information about management structure and operating risk management process can be found.

Key Risk Indicators (KRI's)

ICR is a tool that supports operational risk management. It is comprised of one or more combined and interrelated variables that are (is) an integral part of an operating process, with behavior expected according to predefined rules, and whose variation indicates greater or lesser exposure to the operational risk.

At BB they are used with the objective of identifying weak points associated with the critical operating processes and to assist in the proposition of operating loss mitigation actions.

Operating Loss Exposure Limits

In order to ensure an effective management of operating risks, Banco do Brasil employs operating loss exposure limits, which are intended to establish the limits acceptable to the Bank for operating losses, which are remitted for examination every month by the Operating Risk Sub-Committee and Global Risk Committee (GRC).

In this respect, the BB created the Operating Loss Global Limit in order to allow operating loss management based on statistically pre-established tolerance levels, and to allow the detection of weaknesses associated with processes likely to cause significant losses.

The following table presents the progress of BB's operating losses, according to loss event classes and in percentages.

Table 114. Monitoring of Operational Loss

The Bank also defines specific limits in order to reduce the level of exposure and to guarantee the adoption of mitigation actions at a lower level of granularity.

The limit for overseas branches, the specific limit for losses with credit cards in the credit function and the limit for self-service channels merit special emphasis. The latter, besides prioritizing loss reduction actions, allows us to evaluate the effectiveness of the technical security tools implemented. The following channels have limits which are regularly defined and reviewed: TAA, POS, Internet for Individuals, Withdrawals Abroad, CABB, Cellular, Lottery Ticket Sales Outlets, 24hr Bank, TAA (CEF) and Financial Manager 5.

5 TAA: Automated Teller Machines; POS: Storeowner debit terminal; CABB: Call Center Banco do Brasil; Lottery Ticket Sales Outlets: withdrawals performed at lottery ticket sales outlets; TAA (CEF): Terminals of CEF shared with BB.

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