Standardized Measurement Approach Question

[trigg989]

Should the loss component be based on gross or net loss?

I like this idea for the approach by the way. We use standardized at my firm, might pitch this approach to them. (We're a non-bank but follow Basel for Ops Risk Capital).

 

[Nicole Seaman]

Should the loss component be based on gross or net loss?

I like this idea for the approach by the way. We use standardized at my firm, might pitch this approach to them. (We're a non-bank but follow Basel for Ops Risk Capital).

@trigg989

I'm not sure if this answers your question, but in the source Standardised Measurement Approach for operational risk (here at https://www.dropbox.com/s/s1krptbuhppu6xq/R56-Basel-Committee-on-Banking-Supervision-0316.pdf?dl=0), it discusses gross loss, net loss, and recovery definitions on page 10 and states, "Banks must be able to discretely identify the gross loss amounts, non-insurance recoveries, and insurance recoveries for all operational loss events. Banks must not use losses net of insurance recoveries as an input for the SMA loss data set."

David would be able to answer your question more in-depth, but this may be helpful.

Nicole

 

[trigg989]

Thanks Nicole. I think that's what confuses me. If we use losses net of recoveries (excluding insurance recoveries) or gross losses. Appreciate your help with this!

 

[Hermz29]

From my recollection, we ought not to deduct insurance recoveries. It should be gross loss.