scholarly journals Calculating capital requirements for operational risk

2021 ◽  
Vol 22 (1) ◽  
Author(s):  
Gerd Waschbusch ◽  
Sabina Kiszka
Keyword(s):  
Financial Crisis ◽  
Operational Risk ◽  
Capital Requirements ◽  
Banking Supervision ◽  
Future Measurement ◽  
Basel Committee ◽  
Operational Risks ◽  
Increased Risk ◽  
Risk Potential ◽  
Measurement Approach

Operational risks have become increasingly important for banks, especially against the background of growing IT dependency and the increasing complexity of their activities. Further-more, the corona pandemic contributed to the increased risk potential. Therefore, banks have to back these risks with own funds. There are currently three measurement approaches for determining the capital requirements for operational risk. In recent years, and especially during the Great Financial Crisis of 2007/2008, however, some of the weaknesses inherent in these approaches have become apparent. Thus, the Basel Committee on Banking Supervision revised the current capital framework. Therefore, this article examines the various measurement approaches, addresses inherent weaknesses and moreover, presents the future measurement approach developed by the supervisory authorities.

scholarly journals RISIKO OPERASIONAL BANK DAN PERMODELANNYA

2019 ◽  
Vol 1 (1) ◽  
pp. 28-43
Author(s):  
Iwan Lesmana
Keyword(s):  
Risk Management ◽  
Management Practice ◽  
Operational Risk ◽  
Internal Controls ◽  
Banking Supervision ◽  
Risk Models ◽  
Basel Committee ◽  
Operational Risks ◽  
Indicator Approach ◽  
Measurement Approach

Managing bank’s operational risks becoming an important feature of sound risk management practice in modern financial markets. The most important types of operational risk involve breakdown in internal controls and corporate governance, which could lead to financial losses through fraud, error or failure to perform. Development of statistic has accelarated banks to create internal operational risk models in different ways. Although those models created in different ways, they surely use the pattern of risk management that is developed by Basel Committee on Banking Supervision. Basel Committee on Banking Supervision has proposed three increasingly sophisticated approaches of operational risk, i.e basic indicator approach, standardized approach and advanced measurement approach. Applying those approaches will help banks to eliminate the operational risk, that will lead them to a better intermediation process.

scholarly journals Roles and responsibilities for managing operational risk in a banking environment

2008 ◽  
Vol 5 (3) ◽  
pp. 34-46
Author(s):  
Jackie Young
Keyword(s):  
Risk Management ◽  
Operational Risk ◽  
Main Role ◽  
Banking Supervision ◽  
Operational Risk Management ◽  
Roles And Responsibilities ◽  
Global Institutions ◽  
Basel Committee ◽  
Operational Risks ◽  
Role Players

Operational risk management is one of the fastest growing management disciplines within a banking environment as a result of various disastrous international incidents. Subsequently, various global institutions got involved in order to ensure that the effect of similar events do not negatively influence the international industries, for example, the Basel Committee on Banking Supervision regarding banks. It is, however, a known fact that operational risks are difficult to manage, as it is not easy to quantify. Therefore, it is of the utmost importance to understand the concept of operational risk management and, more specifically, the actual roles and responsibilities of various role-players within an organisation. This paper aims to identify the main role-players involved in the management of operational risk in a banking environment and to identify their specific roles and responsibilities

scholarly journals Internal Controls and Credit Risk in European Banking: The Basel Committee on Banking Supervision Framework Approach

2020 ◽  
Author(s):  
Ellis Kofi Akwaa-Sekyi
Keyword(s):  
Financial Crisis ◽  
Credit Risk ◽  
Internal Control ◽  
Internal Controls ◽  
Banking Supervision ◽  
Basel Committee ◽  
Operational Risks ◽  
Control Framework ◽  
Governance Practices ◽  
European Banking

Poor corporate governance practices have been cited as contributory to the 2007 global financial crisis. The chapter explores a qualitative self-regulation approach to address a major risk facing banks using the Basel Committee on Banking Supervision (BCBS) framework of internal controls. The study examines the effect of the qualitative principles of the BCBS internal control framework on credit risk. Corporate institutions use internal control frameworks to address the most operational risks, but the current study hypothesizes a possible relation with the credit risk. This research covers banks from selected EU countries covering some period before and after the 2007 financial crisis using a fixed-effect model. We report a significant relationship between board functions and activities, board structure and board monitoring, and credit risk. The results indicate that investment in high-risk assets, bank profitability and board chair being ex-CEO increases credit risk in European banking. The chapter extends the scope of a previous work that used the elements of the COSO internal control framework on a single country. This quantitative measure of qualitative constructs of the framework complements existing research that uses algorithms and simulations to study credit risk.

scholarly journals Calculating Operational Risk Capital Charges for Indonesian Rural Banks

2011 ◽  
Vol 1 (1) ◽  
pp. 286 ◽  
Author(s):  
Abdul Mongid ◽  
Izah Mohd Tahir
Keyword(s):  
Historical Data ◽  
Operational Risk ◽  
Banking Supervision ◽  
Risk Capital ◽  
Basel Committee ◽  
Operational Risks ◽  
Indicator Approach ◽  
New Basel Capital Accord ◽  
Capital Charge

In January 2001, the Basel Committee on Banking Supervision published a proposal for a new capital framework, the “New Basel Capital Accord (Basel 11)” thus replacing Basel 1. One of the major motivations in the proposal is the introduction of explicit capital charge for operational risks in the business activities of banks. The objective of this paper is to estimate operational risk capital charge using historical data for 77 rural banks in Indonesia for a three-year period, 2006 to 2008. This study uses three approaches:  (i) Basic Indicator Approach (BIA), (ii) Standardized Approach (SA) and (iii) Alternative Standardized Approach (ASA). We found that the average capital charge required to cover operational risk is IDR 154 million (1.5% of asset). When the calculation is conducted using the SA method, we found, on average a requirement of IDR 123 million (1.23% of asset). When the calculation is conducted using the Alternative Standardized Approach (ASA), the capital required was IDR 43 million (0.43% of asset). The results provide evidence that banks using more advance model require less capital charge.

Part II The Financial Crisis of 2007–2011, 9 The Initial Response to the Financial Crisis by the EU and Elsewhere

2018 ◽  
Author(s):  
Mccormick Roger ◽  
Stears Chris
Keyword(s):  
Financial Crisis ◽  
European Commission ◽  
Financial Stability ◽  
Financial Regulation ◽  
Initial Response ◽  
Banking Supervision ◽  
Basel Committee ◽  
Regulation And Supervision ◽  
European Financial Regulation ◽  
The Eu

This chapter discusses the various laws, regulations, and comparable measures that were passed or proposed in response to the financial crisis in the EU and elsewhere. It covers the responses of the de Larosière Report, G20, the Basel Committee on Banking Supervision, and the Financial Stability Board. The de Larosière Report, for instance, was commissioned by the President of the European Commission in October 2008 and delivered on 25 February 2009. The report sought ‘to give advice on the future of European financial regulation and supervision’ and has formed the basis of many of the responses to the financial crisis at EU level. The G20 issued a comprehensive communiqué on the crisis at the London ‘Summit’ of 2 April 2009, covering a number of macro-economic and other ‘architectural’ issues.

scholarly journals Global Bank Capital and Liquidity after 30 Years of Basel Accords

2020 ◽  
Vol 13 (4) ◽  
pp. 73 ◽  
Author(s):  
Harald Benink
Keyword(s):  
Financial Crisis ◽  
Capital Requirements ◽  
International Banking ◽  
Bank Capital ◽  
Banking Supervision ◽  
Basel Accords ◽  
Capital Ratios ◽  
Working Together ◽  
Recent Financial Crisis ◽  
Global Financial System

In this paper we analyze the effectiveness of more than 30 years of efforts by international banking supervisors, working together in the Basel Committee on Banking Supervision, to harmonize capital and liquidity standards for internationally active banks. Notwithstanding the great efforts and progress made by international banking supervisors since the financial crisis of 2007–2009, two important issues require further attention. First, although bank capital ratios have been raised significantly since the recent financial crisis, they are still at historically low levels. In a world in which global debt ratios have risen even further during the past decade, this is a worrying signal of fragility in the global financial system. Second, bank liquidity requirements may have become too complex and could also have unintented and unpredictable interaction effects with bank capital requirements.

scholarly journals Operational risk quantification and modelling within Romanian insurance industry

2017 ◽  
Vol 11 (1) ◽  
pp. 637-648
Author(s):  
Răzvan Tudor ◽  
Dumitru Badea
Keyword(s):  
Standard Model ◽  
Insurance Industry ◽  
Operational Risk ◽  
Solvency Ii ◽  
Capital Requirements ◽  
Capital Requirement ◽  
Risk Capital ◽  
Operational Risks ◽  
The Standard Model ◽  
Solvency Capital

Abstract This paper aims at covering and describing the shortcomings of various models used to quantify and model the operational risk within insurance industry with a particular focus on Romanian specific regulation: Norm 6/2015 concerning the operational risk issued by IT systems. While most of the local insurers are focusing on implementing the standard model to compute the Operational Risk solvency capital required, the local regulator has issued a local norm that requires to identify and assess the IT based operational risks from an ISO 27001 perspective. The challenges raised by the correlations assumed in the Standard model are substantially increased by this new regulation that requires only the identification and quantification of the IT operational risks. The solvency capital requirement stipulated by the implementation of Solvency II doesn’t recommend a model or formula on how to integrate the newly identified risks in the Operational Risk capital requirements. In this context we are going to assess the academic and practitioner’s understanding in what concerns: The Frequency-Severity approach, Bayesian estimation techniques, Scenario Analysis and Risk Accounting based on risk units, and how they could support the modelling of operational risk that are IT based. Developing an internal model only for the operational risk capital requirement proved to be, so far, costly and not necessarily beneficial for the local insurers. As the IT component will play a key role in the future of the insurance industry, the result of this analysis will provide a specific approach in operational risk modelling that can be implemented in the context of Solvency II, in a particular situation when (internal or external) operational risk databases are scarce or not available.

scholarly journals Analysis of preparation process for Basel II implementation in Czech banks

2005 ◽  
Vol 53 (3) ◽  
pp. 95-108
Author(s):  
Miroslava Mastná
Keyword(s):  
Capital Requirements ◽  
Basel Ii ◽  
Capital Adequacy ◽  
Current Phase ◽  
International Capital ◽  
Banking Supervision ◽  
The Czech Republic ◽  
Basel Committee ◽  
It Systems ◽  
Building Societies

In June 2004 the Basel Committee on Banking Supervision published the new capital adequacy framework commonly known as Basel II. Basel II contains international capital standards for banking organizations and will replace the relatively risk-invariant requirements in the current Basel I accord. The Committee intends Basel II to be available for implementation as of year-end 2006. The goal of this paper is to analyze the current situation in bank preparation for Basel II in the Czech Republic. For this reason a survey was done in the Czech banks in September and October 2004. Results of this survey are subject of this article. Results are separately discussed for four groups of banks (according to balance sum) – large, middle and small banks and building societies. The research is divided into three sections. The first section is concentrated on the current phase of preparation of Czech banks for Basel II. Results of this section showed that large banks are best prepared in comparison to other three groups of banks. The goal of the second section of the research was to find out how banks evaluate difficulty of activities connected with implementation of Basel II. Problems are mostly connected with changes in IT systems and lack of data. The goal of the third section was to find out which approach for calculating capital requirements on credit risk are banks most likely to adopt at the Basel implementation date. Majority of banks is most likely to adopt the Standardised approach.

scholarly journals Znaczenie agencji oceniających (ratingowych) po wprowadzeniu w 2004 roku przez Komitet Bazylejski Nowej Umowy Kapitałowej

2004 ◽  
pp. 101-112
Author(s):  
Monika Gładysz
Keyword(s):  
Capital Requirements ◽  
Capital Adequacy ◽  
Special Importance ◽  
Banking Supervision ◽  
External Assessment ◽  
Minimum Capital ◽  
Basel Committee

Basel Committee on Banking Supervision published in 2004 the New Capital Adequacy Framework. A special importance is assigned in this document to the external assessment agencies. Banks will have to determine the minimum capital requirements on the basis of assessments by the external agencies. The role of the external assessment agencies in the New Capital Adequacy Framework and potential threats and benefits from using by banks the external assessments for determination of the. minimum capital requirements are presented in the paper.

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