Operational Risk Control with Basel II: Basic Principles and Capital Requirements

2005 ◽  
Vol 7 (3) ◽  
pp. 69-70 ◽  
Author(s):  
David E Ayling
Keyword(s):  
Risk Control ◽  
Operational Risk ◽  
Capital Requirements ◽  
Basel Ii ◽  
Basic Principles

A probabilistic approach to IT risk management in the Basel regulatory framework

2017 ◽  
Vol 25 (2) ◽  
pp. 176-195 ◽  
Author(s):  
Semir Ibrahimovic ◽  
Ulrik Franke
Keyword(s):  
Risk Management ◽  
Banking Sector ◽  
Operational Risk ◽  
Capital Requirements ◽  
Basel Ii ◽  
Direct Impact ◽  
Content Type ◽  
Operational Risk Management ◽  
It Risk Management ◽  
It Risk

Purpose This paper aims to examine the connection between information system (IS) availability and operational risk losses and the capital requirements. As most businesses today become increasingly dependent on information technology (IT) services for continuous operations, IS availability is becoming more important for most industries. However, the banking sector has particular sector-specific concerns that go beyond the direct and indirect losses resulting from unavailability. According to the first pillar of the Basel II accord, IT outages in the banking sector lead to increased capital requirements and thus create an additional regulatory cost, over and above the direct and indirect costs of an outage. Design/methodology/approach A Bayesian belief network (BBN) with nodes representing causal factors has been used for identification of the factors with the greatest influence on IS availability, thus helping in investment decisions. Findings Using the BBN model for making IS availability-related decisions action (e.g. bringing a causal factor up to the best practice level), organization, according to the presented mapping table, would have less operational risk events related to IS availability. This would have direct impact by decreasing losses, related to those events, as well as to decrease the capital requirements, prescribed by the Basel II accord, for covering operational risk losses. Practical implications An institution using the proposed framework can use the mapping table to see which measures for improving IS availability will have a direct impact on operational risk events, thus improving operational risk management. Originality/value The authors mapped the factors causing unavailability of IS system to the rudimentary IT risk management framework implied by the Basel II regulations and, thus, established an otherwise absent link from the IT availability management to operational risk management according to the Basel II framework.

scholarly journals Loss distribution approach for operational risk capital modelling under Basel II: Combining different data sources for risk estimation

2013 ◽  
Vol 2 (3) ◽  
pp. 33-57 ◽  
Author(s):  
Pavel Shevchenko ◽  
Gareth Peters
Keyword(s):  
Operational Risk ◽  
Capital Requirements ◽  
Basel Ii ◽  
Data Sources ◽  
Risk Category ◽  
Risk Environment ◽  
Risk Capital ◽  
Regulatory Requirement ◽  
Loss Distribution ◽  
Loss Distribution Approach

The management of operational risk in the banking industry has undergone significant changes over the last decade due to substantial changes in operational risk environment. Globalization, deregulation, the use of complex financial products and changes in information technology have resulted in exposure to new risks very different from market and credit risks. In response, Basel Committee for banking Supervision has developed a regulatory framework, referred to as Basel II, that introduced operational risk category and corresponding capital requirements. Over the past five years, major banks in most parts of the world have received accreditation under the Basel II Advanced Measurement Approach (AMA) by adopting the loss distribution approach (LDA) despite there being a number of unresolved methodological challenges in its implementation. Different approaches and methods are still under hot debate. In this paper, we review methods proposed in the literature for combining different data sources (internal data, external data and scenario analysis) which is one of the regulatory requirement for AMA.

Islamic Banking Regulations in Light of Basel II

2010 ◽  
Vol 27 (1) ◽  
pp. 74-101 ◽  
Author(s):  
M. Kabir Hassan ◽  
Muhammad Abdul Mannan Chowdhury
Keyword(s):  
Financial Institutions ◽  
Banking Regulation ◽  
Capital Requirements ◽  
Basel Ii ◽  
Capital Adequacy ◽  
Regulatory Agencies ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Minimum Capital ◽  
Regulatory Standards

This paper seeks to determine whether the existing regulatory standards and supervisory framework are adequate to ensure the viability, strength, and continued expansion of Islamic financial institutions. The reemergence of Islamic banking and the attention given to it by regulators around the globe as to the implications of a recently issued Basel II banking regulation makes this article timely. The Basel II framework, which is based on minimum capital requirements, a supervisory review process, and the effective use of market discipline, aligns capital adequacy with banking risks and provides an incentive for financial institutions to enhance risk management and their system of internal controls. Like conventional banks, Islamic banks operate under different regulatory regimes. The still diverse views held by the regulatory agencies of different countries on Islamic banking and finance operations make it harder to assess the overall performance of international Islamic banks. In light of the increased financial innovation and diversity of instruments offered in Islamic finance, the need to improve the transparency of bank operations is particularly relevant for Islamic banks. While product diversity is important in maintaining their competitiveness, it also requires increased transparency and disclosure to improve the understanding of markets and regulatory agencies. The governance of Islamic banks is made even more complex by the need for these banks to meet a set of ethical and financial standards defined by the Shari`ah and the nature of the financial contracts banks use to mobilize deposits. Effective transparency in this area will greatly enhance their credibility and reinforce their depositors and investors’ level of confidence.

Operational risk management in financial institutions: Process assessment in concordance with Basel II

2007 ◽  
Vol 12 (4) ◽  
pp. 321-330 ◽  
Author(s):  
B. Di Renzo ◽  
M. Hillairet ◽  
M. Picard ◽  
A. Rifaut ◽  
C. Bernard ◽  
...  
Keyword(s):  
Risk Management ◽  
Financial Institutions ◽  
Operational Risk ◽  
Basel Ii ◽  
Process Assessment ◽  
Operational Risk Management

Islamic Banking Regulations in Light of Basel II

2010 ◽  
Vol 27 (1) ◽  
pp. 74-101
Author(s):  
M. Kabir Hassan ◽  
Muhammad Abdul Mannan Chowdhury
Keyword(s):  
Financial Institutions ◽  
Banking Regulation ◽  
Capital Requirements ◽  
Basel Ii ◽  
Capital Adequacy ◽  
Regulatory Agencies ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Minimum Capital ◽  
Regulatory Standards

This paper seeks to determine whether the existing regulatory standards and supervisory framework are adequate to ensure the viability, strength, and continued expansion of Islamic financial institutions. The reemergence of Islamic banking and the attention given to it by regulators around the globe as to the implications of a recently issued Basel II banking regulation makes this article timely. The Basel II framework, which is based on minimum capital requirements, a supervisory review process, and the effective use of market discipline, aligns capital adequacy with banking risks and provides an incentive for financial institutions to enhance risk management and their system of internal controls. Like conventional banks, Islamic banks operate under different regulatory regimes. The still diverse views held by the regulatory agencies of different countries on Islamic banking and finance operations make it harder to assess the overall performance of international Islamic banks. In light of the increased financial innovation and diversity of instruments offered in Islamic finance, the need to improve the transparency of bank operations is particularly relevant for Islamic banks. While product diversity is important in maintaining their competitiveness, it also requires increased transparency and disclosure to improve the understanding of markets and regulatory agencies. The governance of Islamic banks is made even more complex by the need for these banks to meet a set of ethical and financial standards defined by the Shari`ah and the nature of the financial contracts banks use to mobilize deposits. Effective transparency in this area will greatly enhance their credibility and reinforce their depositors and investors’ level of confidence.

Operational Risk Management Under Basel II: The Case of the Spanish Financial Services

2005 ◽  
Author(s):  
Ana Fernández Laviada ◽  
Francisco J. Martinez Garcia ◽  
Francisco M. Somohano
Keyword(s):  
Risk Management ◽  
Financial Services ◽  
Operational Risk ◽  
Basel Ii ◽  
Operational Risk Management
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