Which new type of risk was introduced in the Basel II framework?  A. Credit risk  B. Market risk  C. Operational risk  D. Settlement risk

Break Down the Problem

1. Identify the risks mentioned in the Basel II framework.
2. Determine which of the options was newly introduced.

Relevant Concepts

• Basel II is a regulatory framework established by the Basel Committee on Banking Supervision that focuses on risk management and capital adequacy in banks.
• The three main types of risks discussed in Basel II are credit risk, market risk, and operational risk.

Analysis and Detail

1. Credit Risk: A risk that a borrower may default on any type of debt by failing to make required payments.
2. Market Risk: The risk of losses in financial markets due to adverse price movements.
3. Operational Risk: This includes risks arising from failures in internal processes, people, and systems, or from external events. This risk was a significant focus in Basel II as it was less emphasized in earlier regulations.
4. Settlement Risk: While this is a recognized risk, it was not a particular focus of Basel II.

Verify and Summarize

Basel II introduced operational risk as a distinct category that needed specific attention from banks, thereby enhancing the regulatory framework surrounding banks' risk management practices.

Final Answer

C. Operational risk