475:. With LDA, a bank first segments operational losses into homogeneous segments, called units of measure (UoMs). For each unit of measure, the bank then constructs a loss distribution that represents its expectation of total losses that can materialize in a one-year horizon. Given that data sufficiency is a major challenge for the industry, annual loss distribution cannot be built directly using annual loss figures. Instead, a bank will develop a frequency distribution that describes the number of loss events in a given year, and a severity distribution that describes the loss amount of a single loss event. The frequency and severity distributions are assumed to be independent. The convolution of these two distributions then give rise to the (annual) loss distribution.
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Under AMA the banks are allowed to develop their own empirical model to quantify required capital for operational risk. Banks can use this approach only subject to approval from their local regulators. Once a bank has been approved to adopt AMA, it cannot revert to a simpler approach without
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According to the BCBS Supervisory
Guidelines, an AMA framework must include the use of four data elements: (i) Internal loss data (ILD), (ii) External data (ED), (iii) Scenario analysis (SBA), and (iv) Business environment and internal control factors (BEICFs).
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Basel II: International
Convergence of Capital Measurement and Capital Standards: a Revised Framework, Comprehensive Version (BCBS) (June 2006 Revision)
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Also, according to section 664 of original Basel Accord, in order to qualify for use of the AMA a bank must satisfy its supervisor that, at a minimum:
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While AMA does not specify the use of any particular modeling technique, one of the most common approaches taken in the banking industry is the
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Basel II: International
Convergence of Capital Measurement and Capital Standards: a Revised Framework (BCBS) (November 2005 Revision)
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Operational Risk - Supervisory
Guidelines for the Advanced Measurement Approaches - final document (BCBS) (June 2011 Revision)
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It has sufficient resources in the use of the approach in the major business lines as well as the control and audit areas.
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Its board of directors and senior management, as appropriate, are actively involved in the oversight of the
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Frachot, A.; Georges, P.; Roncalli, T. (2001). "Loss
Distribution Approach for Operational Risk".
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Management in Financial Institutions
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393:Learn how and when to remove this message
500:Standardized approach (operational risk)
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583:Guégan, D.; Hassani, B.K. (2013).
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362:it lacks sufficient corresponding
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406:Advanced measurement approach
307:Business and Economics Portal
688:. You can help Knowledge by
264:Pillar 2: Supervisory review
121:Pillar 1: Regulatory capital
589:Journal of Operational Risk
445:operational risk management
412:) is one of three possible
290:Pillar 3: Market disclosure
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467:Loss distribution approach
424:. The other two are the
490:Basic indicator approach
426:Basic Indicator Approach
377:more precise citations.
750:Management cybernetics
684:-related article is a
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436:supervisory approval.
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430:Standardised Approach
422:financial institution
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521:GRO, Crédit Lyonnais
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104:Central bank
375:introducing
205:Market risk
156:Credit risk
755:Bank stubs
729:Categories
611:2016-01-13
506:References
447:framework;
358:references
298:Disclosure
282:Legal risk
95:Regulation
83:Background
682:insurance
525:CiteSeerX
51:Basel III
735:Basel II
572:: 37–53.
547:14902497
485:Basel II
479:See also
428:and the
418:Basel II
46:Basel II
371:improve
222:CVA vol
91:Banking
71:Endgame
41:Basel I
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360:, but
232:SA-CVA
227:BA-CVA
188:SA-CCR
149:Tier 2
144:Tier 1
676:This
543:S2CID
244:Basic
176:A-IRB
171:F-IRB
161:SA-CR
686:stub
680:and
678:bank
109:Risk
66:FRTB
61:NSFR
597:doi
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410:AMA
254:AMA
215:IMA
198:CCF
192:IMM
183:EAD
166:IRB
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