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Wednesday, January 5, 2011

What are the key elements for Basel II AMA?

Presentation Here

Basel II operational risk is without a doubt a difficult agenda for some banks especially, if those banks are looking to reach Advanced Measurement Approach or AMA accreditation from the regulator.
Some years ago I was asked by a group of risk managers to define and outline the key elements for a best practice Basel II AMA Operational Risk framework.  To be specific, what does it come down to, what does a bank need to have in place to ensure that it can internally measure its operational risk in line with the AMA standard.

11 Elements for Basel II
After being engaged on several Basel II projects across the planet, over what is really years now, I identified  eleven  foundational elements which need to interrelate with each other to form a measurement system that can estimate loss for the bank.
Eleven Elements for Basel II AMA

These elements are not to be confused with the core initiatives of an operational risk unit such as Loss Data, Key Risk Indicators or Control Self Assessment. They are simply specific components that need to be in place to generate an OpVaR number or the Holy Grail of an Operational Risk capital charge if you prefer.

Risk frameworks suitable for AMA are usually designed unconventionally from back to front. Now this may seem like a slightly abstract way of achieving an end but by starting at the finish line and working backwards, the focus will be on the opVaR result and the program should miss any huge piece of work.

I have been asked for the final presentation for this approach by many people, so I have chosen to share it again here: The top Eleven Elements 

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