CHAPTER 3

The Issues Relating to the Use of Operational Loss Data —Internal and External

David Breden

HSBC Operational Risk Consultancy1

Introduction

In January 2001, the Basel Committee for Banking Supervision published its first consultative paper on the reform of capital adequacy regulations for internationally active banks,2 popularly known as Basel II, and ushered in a new era in operational risk management.

Because Basel II also seeks to make capital adequacy assessments risk-sensitive, and espouses the theory that those institutions that are less risky should hold less capital, it also becomes necessary to develop ­methodologies for quantifying or measuring operational risk exposures. Drawing on the experience of market and credit ...

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