How would you define operational risk in a credit union context?

How would you define operational risk in a credit union context?

• A. The risk of market fluctuations affecting loan pricing.
• B. The risk of loss from failed processes, people, systems, or external events impacting operations.
• C. The risk of reputational damage from marketing.
• D. The risk of defaulted loans.

Answer: (B)

Operational risk is the risk of loss from failed processes, people, systems, or external events that disrupt day-to-day operations. In a credit union, this covers things like human error in processing member transactions, IT system outages, fraudulent activity, outsourcing failures, or events such as natural disasters that interrupt service. It’s about the everyday ability to run the credit union smoothly, not about how market conditions move loan prices, nor about reputational damage from marketing, nor about borrowers failing to repay loans. Understanding this helps you focus on controls, training, and continuity plans that reduce both the likelihood and impact of these disruptions.

Operational risk is the risk of loss from failed processes, people, systems, or external events that disrupt day-to-day operations. In a credit union, this covers things like human error in processing member transactions, IT system outages, fraudulent activity, outsourcing failures, or events such as natural disasters that interrupt service. It’s about the everyday ability to run the credit union smoothly, not about how market conditions move loan prices, nor about reputational damage from marketing, nor about borrowers failing to repay loans. Understanding this helps you focus on controls, training, and continuity plans that reduce both the likelihood and impact of these disruptions.