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.
2019-05-05 10:34:00 Sunday ET

Former Vice President Joe Biden enters the next U.S. presidential race with many moderate-to-progressive policy proposals. At the age of 76, Biden stands ou
2018-12-13 08:30:00 Thursday ET

The recent arrest of HuaWei senior executive manager may upend the trade truce between America and China. At the request of several U.S. authorities, Canadi
2025-10-13 12:32:00 Monday ET

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fund
2019-12-10 09:30:00 Tuesday ET

Federal Reserve institutes the third interest rate cut with a rare pause signal. The Federal Open Market Committee (FOMC) reduces the benchmark interest rat
2019-10-25 07:49:00 Friday ET

U.S. fiscal budget deficit hits $1 trillion or the highest level in 7 years. The current U.S. Treasury fiscal budget deficit rises from $779 billion to $1.0
2025-09-28 10:10:51 Sunday ET

Stock Synopsis: With a new Python program, we use, adapt, apply, and leverage each of the mainstream Gemini Gen AI models to conduct this comprehensive fund