Library

Home > Library > Key motifs in the home-host mantra of operational risk management

Key motifs in the home-host mantra of operational risk management

Author Andy Yeh Alpha

This research article explains the topical issues in home-host operational risk management under the new Basel bank capital framework.

Description:

This paper discusses the key policy issues around the policy implementation of the Basel advanced measurement approach (AMA) to operational risk management. These issues pertain to operational risk governance, capital measurement and allocation, and future advances in operational risk transfer. Although we assess these issues from a host supervisor's perspective, the main themes have practical implications in a broader home-host context.

 

In terms of operational risk governance in the host regime, the local board and senior management must take an active interest in operational risk management. Several work streams such as operational loss scenario analysis, business continuity management, and external audit or other forms of independent assurance could help reinforce this active interest. Also, the significant subsidiary of a globally active bank is expected to hold an adequate amount of capital for operational risk. At the more disaggregated level, capital allocation must create sound incentives for business lines to carry out effective operational risk management processes. This capital allocation calls for the integration of the operational risk management processes into the business-as-usual teams. Furthermore, it is important to create a robust nexus between managerial pay and operational risk-adjusted return. This nexus helps strengthen the incentives for business lines to enhance the overall quality of operational risk management over time.

 

Future work could shed fresh light on the treatment of diversification benefits between operational risk and other risks as part of the Pillar 2 supervisory review process. This work adds value to the internal capital adequacy assessment process (ICAAP). Also, future developments should help promote operational risk transfer via insurance contracts or derivatives. These risk products could help advance the evolution of operational risk management to a new era.

 

Blog+More

Management consultants can build sustainable trust-driven client relations through the accelerant curve of business value creation.

Monica McNeil

2020-11-17 08:27:00 Tuesday ET

Management consultants can build sustainable trust-driven client relations through the accelerant curve of business value creation.

Management consultants can build sustainable trust-driven client relations through the accelerant curve of business value creation. Alan Weiss (2016)

+See More

Tony Robbins explains in his latest book on personal finance that *patience* is the top secret.

Becky Berkman

2017-01-27 17:19:00 Friday ET

Tony Robbins explains in his latest book on personal finance that *patience* is the top secret.

Tony Robbins explains in his latest book on personal finance that *patience* is the top secret to successful stock investment. The stock market embeds an

+See More

The Biden Inflation Reduction Act is central to modern world capitalism.

Andy Yeh Alpha

2023-02-28 11:30:00 Tuesday ET

The Biden Inflation Reduction Act is central to modern world capitalism.

The Biden Inflation Reduction Act is central to modern world capitalism. As of 2022-2023, global inflation has gradually declined from the peak of 9.8% d

+See More

Berkeley tax economists Gabriel Zucman and Emmanuel Saez find fresh insights into wealth inequality in America.

Jacob Miramar

2019-06-27 10:39:00 Thursday ET

Berkeley tax economists Gabriel Zucman and Emmanuel Saez find fresh insights into wealth inequality in America.

Berkeley tax economists Gabriel Zucman and Emmanuel Saez find fresh insights into wealth inequality in America. Their latest estimates show that the top 0.1

+See More

Income and wealth concentration follows the ebbs and flows of the business cycle in America.

Amy Hamilton

2019-04-23 19:45:00 Tuesday ET

Income and wealth concentration follows the ebbs and flows of the business cycle in America.

Income and wealth concentration follows the ebbs and flows of the business cycle in America. Economic inequality not only grows among people, but it also gr

+See More

A Harvard MBA graduate Camilo Maldonado shares several life lessons and wise insights into personal finance.

James Campbell

2019-05-17 15:24:00 Friday ET

A Harvard MBA graduate Camilo Maldonado shares several life lessons and wise insights into personal finance.

A Harvard MBA graduate Camilo Maldonado shares several life lessons and wise insights into personal finance. People can leverage stock market investments an

+See More