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The Basel Committee Proposes New Approach to Operational Risk Capital in Banks


On March 4, the Basel Committee on Banking Supervision (BCBS) released a consultative document proposing the introduction of a new standardized measurement approach for operational risk. The approach is intended to apply to all internationally active banks, and some that are only active within their home jurisdictions.

This new standard would replace all existing approaches, including the Advanced Measurement Approach (AMA), under which banks are allowed to develop their own capital requirement models for operational risk with approval from their local regulators.

The proposed approach was developed to promote the comparability of risk-based capital measures and reduce model complexity; however, it is driven by balance sheet metrics adjusted by past operational loss experience, which could result in less incentive for banks to measure or manage their operational risks.

This advisory document outlines the new approach and the inherent risks behind it. Download the pdf to read the whole article.