ABA Suggests Improvements for Basel Operational Risk Capital Calculation

In its response to the Basel committee’s consultative document on a standardized measurement approach for calculating operational risk capital, ABA today supported the replacement of the existing internal models-based advanced measurement approach with a simpler, standardized calculation of operational risk capital that does not appreciably increase overall capital requirements.

Traditionally in the U.S., operational risk capital has only applied to banks that are internationally active. The SMA is intended to balance simplicity, comparability and risk sensitivity by combining a financial statement-based measure of operational risk with an individual firm’s historical operational losses.

ABA made several recommendations for improving the SMA, including using risk management tools such as insurance and hedges when calculating operational risk capital; excluding discontinued business activities from the historical loss component of the calculation to reflect a bank’s current risk environment; and applying the previously used de minimis gross threshold of loss events to minimize costly and burdensome system and process changes.  For more information, contact ABA’s Barry Mills or Jane Yao.


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