EconPapers    
Economics at your fingertips  
 

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

Papers from arXiv.org

Abstract: Recently, Basel Committee for Banking Supervision proposed to replace all approaches, including Advanced Measurement Approach (AMA), for operational risk capital with a simple formula referred to as the Standardised Measurement Approach (SMA). This paper discusses and studies the weaknesses and pitfalls of SMA such as instability, risk insensitivity, super-additivity and the implicit relationship between SMA capital model and systemic risk in the banking sector. We also discuss the issues with 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 internal modelling 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, UK and USA, and recently at OpRisk Europe 2016 conference in London.

New Economics Papers: this item is included in nep-ban, nep-cba, nep-ger and nep-rmg
Date: 2016-07, Revised 2016-09
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Published in Journal of Operational Risk, Vol. 11, Issue 3, pp. 1-49, 2016

Downloads: (external link)
http://arxiv.org/pdf/1607.02319 Latest version (application/pdf)

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:arx:papers:1607.02319

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().

 
Page updated 2018-04-29
Handle: RePEc:arx:papers:1607.02319