Which risk is specifically defined as the risk stemming from inadequate internal processes?

Operational risk is defined as the risk that arises from inadequate or failed internal processes, systems, and controls, as well as from external events. This type of risk encompasses a wide range of potential issues, including human error, fraud, system failures, and problems related to the organization's internal processes.

Understanding operational risk is crucial for any organization, particularly in banking, where robust internal controls and processes are essential to manage various operational activities effectively. By focusing specifically on the inadequacies within an organization’s operations, operational risk management aims to identify, assess, and mitigate these risks to enhance overall performance and ensure regulatory compliance.

In contrast, other types of risks relate to different aspects of financial operations. For example, credit risk pertains to the possibility of loss due to a borrower's failure to repay a loan, market risk involves the potential for losses due to fluctuations in market prices, and liquidity risk is associated with the inability to meet short-term financial obligations. Thus, operational risk is uniquely aligned with the concept of internal process adequacy, distinguishing it from the other categories of risk.