Course Errors Found in 2023 Study Materials P2.T7. Operational & Integrated Risk

Nicole Seaman

Director of CFA & FRM Operations
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Please use this new thread to let us know about any errors, missing/broken links, etc., that you find in the 2023 materials that are published in the study planner under P2.T7. Operational & Integrated Risk. This will keep our forum much more organized. We appreciate your cooperation! :)

PLEASE NOTE: Our Practice Question sets already have links to their specific forum threads where you can post about any errors that you find. This thread is for any other materials (notes, spreadsheets, videos, etc.) where you might find errors.

Information needed for us to correct errors:

  • Reading
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Shau_2207

Member
Hi , Not sure if someone highlighted this before for Ops risk study notes 2023. Risk Governance chapter 2 we are missing Pillar 1 Capital calculations in the study notes. I see it was discussed by Jay in the video lectures but missing in study notes.
 

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enjofaes

Active Member
Hi , Not sure if someone highlighted this before for Ops risk study notes 2023. Risk Governance chapter 2 we are missing Pillar 1 Capital calculations in the study notes. I see it was discussed by Jay in the video lectures but missing in study notes.
I think this one is part of chapter 24 in fact. It is briefly in chapter 2 indeed, but he went over it too soon in the video as the focus on this topic was perhaps better at the end of the ORR book: p488 Vitalsource.1683382995126.png
 

enjofaes

Active Member
Personal suggestion: chapter 10: add in 2LOD the fact AML/CFT officer cannot have any business line responsibilities and should not be entrusted with responsibiliies in the context of data protection of internal audit (conflicts of insterest). Although COI is mentioned in the bullet point might be good to further clarify
 

enjofaes

Active Member
P143 I haven't read anything about correspondent banks (it's part of the annex of https://www.bis.org/bcbs/publ/d353.pdf and point 9. in the book with only a reference to the annex) -- again Garp forgot to add the annex in the books... Question 20.5.2 does not seem applicable then as GARP did not add this info in the books
 

enjofaes

Active Member
P179 small typo: Risk event type Clients, practices and business practices => should be Clients, Products ... ;)
 

enjofaes

Active Member
1683980696981.png
ORR-21: Vitalsource 385:
OK, how can GARP make an error like this? Please fix the LOS also in the notes :) "Standardized IRB", FIRB & Advanced IRB...

There's no such thing as a "Standardized IRB" approach. The three primary methodologies for calculating credit risk under the Basel II and Basel III frameworks are:

The Standardized Approach
The Foundation Internal Ratings-Based (FIRB) Approach
The Advanced Internal Ratings-Based (AIRB) Approach
 

enjofaes

Active Member
ORR-21: p388. Good examples but not in the scope of the book: only part in the book about the comprehensive approach is the following statement below. But love the example so would keep it in any case with a disclaimer:

The alternative "comprehensive approach" required changes in exposure and collateral amounts to allow for possible changes in the value. The RW of the collateral was applied to the reduced amount of the collateral, and the counterparty's RW was applied to the remaining exposure. Any netting was applied separately to exposures and collateral, and neither Basel rules or (approved) internal models could be used to make the adjustments.
1683981769072.png
 
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enjofaes

Active Member
ORR-21: Just a note on an error made by GARP I think again...? @David Harper CFA FRM
I saw the example below:

1683985543531.png

In the book the exact same example is given: BB-rated 100Mio, 3 years, PD 0.01, LGD 30%; DR 14%
But the solution is different: 61.4
The only difference is in the maturity adjustment:
MA = 1.26
MA = 1/(1-1.5*0.137)

First of all in the book there is no bracket which includes the 1..:
MA = 1 + b*(M-2.5)/(1-1.5*b)



I checked the CRR. The 1 should be in the fraction according to article 153 :
1683989239014.png

Also if the 1 is indeed in the fraction, then it would mean that
=(1+(3-2.5)*(0.11852-0.05478*LN(0.01))^2)/(1-1.5*(0.11852-0.05478*LN(0.01))^2) = 1.346 like in the study notes.

So I'm not sure what went down with the copy paste by GARP from one revision to the next because I see that the study notes (which are correct) mention GARP 2019
1683989513582.png
 

enjofaes

Active Member
Vitalsource 431 ORR-22 Basel 2.5
1684053897342.png
can be read incorrectly because why would banks otherwise try to use the internal model is it's subject to a minimum value of the cap req by standardized approach: should be "model-based charge may not be less than a fraction of the charge under the standardized approach"

More on this: https://www.judict.eu/act/32013R0575/recitals?query=comprehensive+risk+capital
(71)This Regulation lays down limited exceptions for certain correlation trading activities, in accordance with which an institution may be permitted by its supervisor to calculate a comprehensive risk capital charge subject to strict requirements. In such cases the institution should be required to subject those activities to a capital charge equal to the higher of the capital charge in accordance with that internally developed approach and 8 % of the capital charge for specific risk in accordance with the standardised measurement method. It should not be required to subject those exposures to the incremental risk charge but they should be incorporated into both the value-at-risk measures and the stressed value-at-risk measures.
 

enjofaes

Active Member
Note a mistake - but is it me or is GARP messing up the structure a bit and including double information??

I was reading the notes and the book & expected a learning objective on the changes after the GFC for Credit Risk, CVA risk, Operational risk in Chapter 22 of ORR as the information is included in the books & not included in the study notes.

GARP however then includes Chapter ORR-23 & ORR-24 to go into detail into these specific topics, but still why would they summarize these already in ORR-21?
 

gsarm1987

FRM Content Developer
Staff member
Subscriber
Note a mistake - but is it me or is GARP messing up the structure a bit and including double information??

I was reading the notes and the book & expected a learning objective on the changes after the GFC for Credit Risk, CVA risk, Operational risk in Chapter 22 of ORR as the information is included in the books & not included in the study notes.

GARP however then includes Chapter ORR-23 & ORR-24 to go into detail into these specific topics, but still why would they summarize these already in ORR-21?
I remember coming across these readings when i sat in nov 2022. The notes cover pre-post GFC on Basel, its just the GARP writing in detail as usual. this all could have been nicely wrapped up under one, i think it could be the lenghth of material that compelled them to split into 3. another thing is its split across books in GARP material, so to be honest i didnt get the full picture until i had read credit and operational risk readings.
 

gsarm1987

FRM Content Developer
Staff member
Subscriber
ORR-22: GSIB on CCB & CCyB
View attachment 3939
View attachment 3940
out of scope material book
GARP material, page 337, there is LOS as follows:
Describe the motivations for and calculate the capital conservation buffer and the counter cyclical buffer, including special rules for globally systemically important banks (G-SIBs).

The exhibits in notes are demonstrating that: key take away, need to pay less dividends where we have more impact from cyclical. The left columns in tables show that when we do have criticality as concern then we have to maintain from equity, so that calls for keeping more tier 1 capital. for this reason the ranges are pushed high.

S-GIB in particular, may face more stringent requirements during economic expansions to ensure they are resilient during downturns. The need for higher capital conservation becomes crucial to mitigate the systemic risk associated with these globally significant institutions. this all explained in p341 in GARP material
 
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