How does operational risk affect the bank?

Operational risk affects banks by exposing them to potential losses resulting from inadequate or failed internal processes, systems, or external events. This can lead to financial losses, reputational damage, and regulatory penalties, impacting overall profitability and stability. Effective management of operational risk is crucial for maintaining customer trust and ensuring compliance with regulatory requirements. Additionally, high operational risk can hinder a bank's ability to innovate and adapt to changing market conditions.