Should the advanced measurement approach be replaced with the standardized measurement approach for operational risk?

Gareth W Peters, Pavel V Shevchenko, Bertrand Hassani and Ariane Chapelle

Journal of Operational Risk

Abstract: ABSTRACT Recently, the Basel Committee for Banking Supervision proposed to replace all approaches, including the advanced measurement approach (AMA), to operational risk capital with a simple formula referred to as the standardized measurement approach (SMA). This paper discusses and studies the weaknesses and pitfalls of the SMA, such as instability, risk insensitivity, super-additivity and the implicit relationship between the SMA capital model and systemic risk in the banking sector. We also discuss issues with the closely related operational risk capital-at-risk (OpCar) Basel Committee-proposed model, which is the precursor to the SMA. In conclusion, we advocate to maintain the AMA internal model framework and suggest as an alternative a number of standardization recommendations that could be considered to unify the internal modeling of operational risk. The findings and views presented in this paper have been discussed with and supported by many OpRisk practitioners and academics in Australia, Europe, the United Kingdom and the United States, and recently at the OpRisk Europe 2016 conference in London. ; ;

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-operational-risk/2 ... for-operational-risk (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ3:2470168

Access Statistics for this article

More articles in Journal of Operational Risk from Journal of Operational Risk
Bibliographic data for series maintained by Thomas Paine ().