Basel II norms on Operational Risk

Presented by-Nahid Anjum

Agenda

• Operational risk• Basel II norms on operational risk• Operational risk approaches• Methods of operational risk management

Operational risk

• a risk arising from execution of a company's business functions

• focuses on the risks arising from the people, systems and processes through which a company operates

• According to basel II regulations, operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events

Basel II norms on operational risk

• The Basel Committee defines operational risk as:– "The risk of loss resulting from inadequate or

failed internal processes, people and systems or from external events."

• The Basel II definition of operational risk excludes, for example, strategic risk - the risk of a loss arising from a poor strategic business decision

Basel II norms on operational risk

• Basel II is the international capital adequacy framework for banks that prescribes capital requirements for credit risk, market risk and operational risk.

Operational risk approaches

Operational risk

Basic indicator approach

Standardized approach

Advanced measurement

approach

Methods of operational risk management

• Basic Indicator Approach - based on annual revenue of the Financial Institution

• Standardized Approach - based on annual revenue of each of the broad business lines of the Financial Institution

• Advanced Measurement Approaches - based on the internally developed risk measurement framework of the bank adhering to the standards prescribed

Thank you