Basel II Norms on Operational Risk
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Transcript of Basel II Norms on Operational Risk
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Basel II norms on Operational Risk
Presented by-Nahid Anjum
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Agenda
• Operational risk• Basel II norms on operational risk• Operational risk approaches• Methods of operational risk management
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Operational risk
• a risk arising from execution of a company's business functions
• focuses on the risks arising from the people, systems and processes through which a company operates
• According to basel II regulations, operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events
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Basel II norms on operational risk
• The Basel Committee defines operational risk as:– "The risk of loss resulting from inadequate or
failed internal processes, people and systems or from external events."
• The Basel II definition of operational risk excludes, for example, strategic risk - the risk of a loss arising from a poor strategic business decision
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Basel II norms on operational risk
• Basel II is the international capital adequacy framework for banks that prescribes capital requirements for credit risk, market risk and operational risk.
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Operational risk approaches
Operational risk
Basic indicator approach
Standardized approach
Advanced measurement
approach
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Methods of operational risk management
• Basic Indicator Approach - based on annual revenue of the Financial Institution
• Standardized Approach - based on annual revenue of each of the broad business lines of the Financial Institution
• Advanced Measurement Approaches - based on the internally developed risk measurement framework of the bank adhering to the standards prescribed
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Thank you