Operational Risk toward Basel III: Best Practices and Issues in Modeling, Management, and Regulation

CHAPTER 2

Consistent Quantitative Operational Risk Measurement

Andreas A. Jobst

 

 

ABSTRACT

With the increased size and complexity of the banking industry, operational risk has a greater potential to occur in more harmful ways than many other sources of risk. This chapter provides a succinct overview of the current regulatory framework of operational risk under the New Basel Capital Accord with a view to inform a critical debate about the influence of varying loss profiles and different methods of data collection, loss reporting, and model specification on the reliability of operational risk estimates and the consistency of risk-sensitive capital rules. The findings offer guidance on enhanced market practice and more effective prudent standards for operational risk measurement.

2.1 INTRODUCTION

While financial globalization has fostered higher systemic resilience due to more efficient financial intermediation and greater asset price competition, it has also complicated banking regulation and risk management in The views expressed in this chapter are those of the author and should not be attributed to the International Monetary Fund, its Executive Board, or its management. Any errors and omissions are the sole responsibility of the author. banking groups. Given the increasing sophistication of financial products, the diversity of financial institutions, and the growing interdependence of financial systems, globalization increases the potential for markets and business cycles ...