Measuring, Quantifying & Modeling Operational Risk June 28, 2010

Banks in Asia have started to implement the Basel II capital framework since 2007. Some banks which had globally focused banking operations, even started implementing well before the deadline. Since the regulators here do not mandate or require banks to adopt specific approaches, it is up to the banks to choose the appropriate approach for their risk management framework. However, banks are encouraged to adopt to a more advanced approach once they have implemented the basic ones. For operational risk, most banks in Asia are implementing the Basic Indicator Approach (BIA) or the Standardized Approach (TSA) depending on the maturity of the banks and local economy. Although these approaches are much easier to compute and require less information, yet some banks are still facing difficulties to segregate their business lines for capital allocation purposes. Banks that have successfully implemented TSA are currently looking to move to Advanced Measurement Approach (AMA). Interestingly, in a survey carried out by KPMG, Basel II in the Asia Pacific Banking Sector Survey 2008, showed that banks had achieved added value with operational risk management (ORM), even using the less complex approaches. The move is probably due to the increased understanding of the significant benefits of using the AMA. The most basic requirement for banks to implement AMA is the data that is needed but data is seen as the major dilemma for banks. They do not have sufficient internal and external data that can be used for the risk calculation. Even if they have the data, the question of reliability and validity arises, causing banks to strive to filter the data gathered. AMA also requires a what if analysis such as in scenario planning which is largely based on assumptions. Too much uncertainty in the quantification, at times, make banks wonder if the result of the quantification is truly reflecting the actual scenario. Measuring, Quantifying & Modeling Operational Risk aims to uncover the strategies and methodologies of implementing a solid Advanced Measurement Approach to operational risk while addressing the unsolved challenges of risk computation.

Official Website: http://www.jfpsgroup.com/kltrainings/MQMOR/index-1.html