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Gleeson on the International Regulation of Banking, 3rd Edition by Gleeson, Simon (30th August 2018)

Part IV Other Risks, 19 Operational Risk Requirements

From: Gleeson on the International Regulation of Banking (3rd Edition)

Simon Gleeson

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.date: 14 December 2019

Subject(s):
Regulation of banks — Credit risk — Financial regulation — Basel 2 — Basel committee on Banking Supervision

Operational risk is the ‘risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events’. Banks are required to control their operational risk exposure. This chapter discusses the three approaches Basel 2 offers to determine operational risk: the basic indicator approach, the standardized approach, and the advanced measurement approach (AMA). The first two mechanisms which Basel provides for calculating operational risk eschew the analysis of operational risks themselves, and operate on a percentage of lead indicator basis. However, the third approach, i.e. the AMA, permits banks to assess the actual incidence and severity of operational risk within the institution, and to model a charge based on that information.

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