Advanced Measurement Approach
- Thread starter Liming
- Start date
Hi Liming,
I looked at my library resources, but I can't seem to find any further detail. Here is the source Basel:
676. In addition to using loss data, whether actual or scenario-based, a bank’s firm-wide risk assessment methodology must capture key business environment and internal control factors that can change its operational risk profile. These factors will make a bank’s risk assessments more forward-looking, more directly reflect the quality of the bank’s control and operating environments, help align capital assessments with risk management objectives, and recognise both improvements and deterioration in operational risk profiles in a more immediate fashion. To qualify for regulatory capital purposes, the use of these factors in a bank’s risk measurement framework must meet the following standards:
• The choice of each factor needs to be justified as a meaningful driver of risk, based n experience and involving the expert judgment of the affected business areas. Whenever possible, the factors should be translatable into quantitative measures
that lend themselves to verification.
• The sensitivity of a bank’s risk estimates to changes in the factors and the relative weighting of the various factors need to be well reasoned. In addition to capturing changes in risk due to improvements in risk controls, the framework must also capture potential increases in risk due to greater complexity of activities or increased business volume.
• The framework and each instance of its application, including the supporting rationale for any adjustments to empirical estimates, must be documented and subject to independent review within the bank and by supervisors.
• Over time, the process and the outcomes need to be validated through comparison to actual internal loss experience, relevant external data, and appropriate adjustments made.
I looked at my library resources, but I can't seem to find any further detail. Here is the source Basel:
676. In addition to using loss data, whether actual or scenario-based, a bank’s firm-wide risk assessment methodology must capture key business environment and internal control factors that can change its operational risk profile. These factors will make a bank’s risk assessments more forward-looking, more directly reflect the quality of the bank’s control and operating environments, help align capital assessments with risk management objectives, and recognise both improvements and deterioration in operational risk profiles in a more immediate fashion. To qualify for regulatory capital purposes, the use of these factors in a bank’s risk measurement framework must meet the following standards:
• The choice of each factor needs to be justified as a meaningful driver of risk, based n experience and involving the expert judgment of the affected business areas. Whenever possible, the factors should be translatable into quantitative measures
that lend themselves to verification.
• The sensitivity of a bank’s risk estimates to changes in the factors and the relative weighting of the various factors need to be well reasoned. In addition to capturing changes in risk due to improvements in risk controls, the framework must also capture potential increases in risk due to greater complexity of activities or increased business volume.
• The framework and each instance of its application, including the supporting rationale for any adjustments to empirical estimates, must be documented and subject to independent review within the bank and by supervisors.
• Over time, the process and the outcomes need to be validated through comparison to actual internal loss experience, relevant external data, and appropriate adjustments made.
Similar threads
