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Part III Quantitative Capital Requirements, 12 Operational Risk in the Capital Requirements Framework for Banks

Bart P.M. Joosen

From: Capital and Liquidity Requirements for European Banks (1)

Edited By: Bart P.M. Joosen, Marco Lamandini, Tobias H. Tröger

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved.date: 27 February 2024

Subject(s):
Credit risk — Basel 3 — Capital requirement — Basel committee on Banking Supervision

This chapter studies the capital requirements for operational risk, which were included for the first time in the Basel Accord of 2004. Because the effects of operational risk can be vast, it is important that banks have sound risk management policies and risk assessment procedures to address this particular risk family. In the last two decades, the Basel Committee of Banking and Supervision (BCBS) has put up important frameworks, which are implemented in legislation of the European Union (EU), most importantly in the Capital Requirements Regulation (CRR). Currently, the CRR provides four possible approaches (or methodologies) to calculate the own funds requirements for operational risk: the Basis Indicator Approach (BIA), the Standardised Approach (SA), the Alternative Standardised Approach (ASA), and the Advanced Measurement Approach (AMA). However, the current framework will be overhauled by a new framework which should apply from January of 2022: the Basel III-Reform. This will implement the revised standards as adopted by the BCBS in December of 2017. The chapter looks at the new framework and its new approach on operational risk, before considering disclosure requirements and the principles for sound management of operational risk.

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