This study analysed return volatility after operational loss announcements concerning major South African banks during 2000-2014. The sample of banks that experienced losses over the sample period was compared with a sample of unaffected banks, the banking index and the stock market index, to identify whether the operational loss announcements had spill over effects on the whole South African banking sector. Daily share returns were analysed using event study methodology and the weighted moving average (EWMA) model. On one hand, the results showed that the operational loss events for two of the affected banks exerted no effect on the number of unaffected banks. On the other hand, the operational loss events for the two remaining banks were found to have spill over effects. The returns of the unaffected banks as well as the whole banking sector were effected, which led to systemic risk. However, results revealed that operational losses in the South African banks did not spill over to the stock market. Overall, the findings indicate that the effect of operational losses may depend on the level of integration between individual banks.