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

The Chinese new star board launches for tech firms to list at home.

Daphne Basel

2019-07-09 15:14:00 Tuesday ET

The Chinese new star board launches for tech firms to list at home.

The Chinese new star board launches for tech firms to list at home. The Nasdaq-equivalent new star board serves as a key avenue for Chinese tech companies t

+See More

Anne Krueger explains why the Trump administration's current tariff tactics undermine the multilateral global trade system.

Fiona Sydney

2018-09-21 09:41:00 Friday ET

Anne Krueger explains why the Trump administration's current tariff tactics undermine the multilateral global trade system.

Former World Bank and IMF chief advisor Anne Krueger explains why the Trump administration's current tariff tactics undermine the multilateral global tr

+See More

Ivanka Trump softens her father's brash and combative image with a social agenda toward female empowerment.

Fiona Sydney

2017-06-09 06:37:00 Friday ET

Ivanka Trump softens her father's brash and combative image with a social agenda toward female empowerment.

To complement President Trump's pro-business economic policies such as low taxation, new infrastructure, greater job creation, and technological in

+See More

China, Russia, France, Germany, and Japan may dethrone the petrodollar.

Jacob Miramar

2018-07-01 08:34:00 Sunday ET

China, Russia, France, Germany, and Japan may dethrone the petrodollar.

Are China and Russia etc gonna dethrone the petrodollar? Over the years, China, Russia, France, Germany, and Japan have made numerous attempts to use their

+See More

AYA finbuzz podcast offers fresh insights into the latest stock market topics, economic trends, and personal finance inspirations as of November 2019.

Daphne Basel

2019-11-26 11:30:00 Tuesday ET

AYA finbuzz podcast offers fresh insights into the latest stock market topics, economic trends, and personal finance inspirations as of November 2019.

AYA Analytica finbuzz podcast channel on YouTube November 2019 In this podcast, we discuss several topical issues as of November 2019: (1) The Trump adm

+See More

State, society, and the narrow corridor to liberty

Joseph Corr

2023-09-28 08:26:00 Thursday ET

State, society, and the narrow corridor to liberty

Daron Acemoglu and James Robinson show a constant economic tussle between society and the state in the hot pursuit of liberty. Daron Acemoglu and James R

+See More