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Given the lack of clarity concerning a standardised definition of non-financial risk, we here define the terms ‘financial risk’ and ‘non-financial risk’ the way we will use them throughout this book. The general approach considers regulatory definitions already in use and attempts to find a structure that encompasses all types of risk.

Financial risk can generally be defined as “the possibility of losing money on an investment or business venture.”[29] Other categorisations of financial risk use the question of measurability, meaning whether methodologies are available to accurately model and measure risk.

However, as both approaches do not clearly define the risk types that would be considered under financial risk, our definition of financial risk is based on a positive-list approach, defining all risk types that belong in this risk category. Non-financial risk is then defined as the remaining risk types. Moreover, due to the importance of the term “operational risk,” which is a supercategory for certain, yet not all non-financial risks, non-financial risk itself is subdivided into two key categories: operational risks and strategic risks. Taken together, this approach covers all types of risks possible in financial institutions.