Advanced measurement approach (AMA)

A disadvantage of the standardized approach is that it is the same for all banks, whether or not they have good control of operational processes. So as to encourage banks to control operational risk and benefit from a lower capital charge, banks can themselves estimate statistically what could be the worst operational losses, for a confidence level of 99.9%. This requires the estimation of two factors: the number (frequency) of operational losses over a year, and the potential magnitude of these operational losses. The measurement of operational risk relies on techniques developed in the fields of statistics, insurance mathematics and engineering. For example, techniques developed in hydrology, to assess the ...

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