Abstract
Chapter 8 describes the current operational risk framework, the final specifications of the proposed standardised measurement approach (SMA) for its estimation under the final Basel III (BCBS, Basel III: Finalising post-crisis reforms—Standards, 2017), and their comparison with the initial proposals for the SMA (BCBS, 2016b).
Within the description of SMA methodology, Chap. 8 compares the core SMA proposals with the alternative specifications proposed by the authors. Also, the chapter presents the interaction between the business indicator component and the internal loss multiplier and infers the sensitivity of how banks’ operational risk requirements are affected by the new framework.
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Notes
- 1.
Matlab Statistics Toolbox uses the command gprnd to generate generalised Pareto random numbers.
- 2.
The following P&L items do not contribute to any of the items of the BI: (a) income and expenses from insurance or reinsurance businesses; (b) premiums paid and reimbursements/payments received from insurance or reinsurance policies purchased; (c) administrative expenses, including staff expenses, outsourcing fees paid for the supply of non-financial services (e.g. logistical, IT, human resources), and other administrative expenses (e.g. IT, utilities, telephone, travel, office supplies, postage); (d) recovery of administrative expenses including recovery of payments on behalf of customers (e.g. taxes debited to customers); (e) expenses of premises and fixed assets (except when these expenses result from operational loss events); (f) depreciation/amortisation of tangible and intangible assets (except depreciation related to operating lease assets, which should be included in financial and operating lease expenses); (g) provisions/reversal of provisions (e.g. on pensions, commitments, and guarantees given) except for provisions related to operational loss events; (h) expenses due to share capital repayable on demand; (i) impairment/reversal of impairment (e.g. on financial assets, non-financial assets, investments in subsidiaries, joint ventures, and associates); (j) changes in goodwill recognised in profit or loss; and (k) corporate income tax (tax based on profits including current tax and deferred tax).
References
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Basel Committee on Banking Supervision (BCBS). (2006, June). Basel II: International convergence of capital measurement and capital standards: A revised framework – Comprehensive version. Retrieved from http://www.bis.org/publ/bcbs128.pdf
Basel Committee on Banking Supervision (BCBS). (2011, June). Principles for the sound management of operational risk. Retrieved from http://www.bis.org/publ/bcbs195.pdf
Basel Committee on Banking Supervision (BCBS). (2016, March). Standardised measurement approach for operational risk – Consultative document. Retrieved from http://www.bis.org/bcbs/publ/d355.pdf
Basel Committee on Banking Supervision (BCBS). (2017, December). Basel III: Finalising post-crisis reforms – Standards. Retrieved December 7, 2017, from https://www.bis.org/bcbs/publ/d424.pdf
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Akkizidis, I., Kalyvas, L. (2018). Revisions to Operational Risk. In: Final Basel III Modelling. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-70425-8_8
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DOI: https://doi.org/10.1007/978-3-319-70425-8_8
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