Home > Library > 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.
2018-04-26 07:37:00 Thursday ET

Credit supply growth drives business cycle fluctuations and often sows the seeds of their own subsequent destruction. The global financial crisis from 2008
2019-06-09 11:29:00 Sunday ET

St Louis Federal Reserve President James Bullard indicates that his ideal baseline scenario remains a mutually beneficial China-U.S. trade deal. Bullard ind
2019-01-31 08:40:00 Thursday ET

We offer a free ebook on the latest stock market news, economic trends, and investment memes as of January 2019: https://www.dropbox.com/s/4d8z
2019-12-28 09:36:00 Saturday ET

Global debt surges to $250 trillion in the fiscal year 2019. The International Institute of Finance analytic report shows that both China and the U.S. accou
2020-05-07 08:26:00 Thursday ET

Disruptive innovators often apply their 5 major pragmatic skills in new blue-ocean niche discovery and market share dominance. Jeff Dyer, Hal Gregersen,
2019-02-09 08:33:00 Saturday ET

Apple provides positive forward guidance on both revenue and profit forecasts for iPhones, iPads, and MacBooks. In the Christmas 2018 festive season, MacBoo