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10 08, 2023

FedFin on: Operational Risk-Based Capital Standards

2023-08-11T16:25:34-04:00August 10th, 2023|The Vault|

Noting that operational risk is present at all banks due to most activities, the U.S. regulatory-capital rewrite would end the current approach to operational risk-based capital (ORBC).  This now subjects only categories I and II banks to ORBC and then only to the advanced measurement approach (AMA) premised on each bank’s internal models.  Consistent with the overall decision to end internal-model reliance, this section of the proposal subjects categories I, II, III, and IV banks to a new operational-risk standardized approach (SA).  This would result in very steep capital requirements based on a bank’s experience over the past ten years compared to various sources of revenue over the past three years, perhaps taking business-model changes over the course of the last three years into account if regulatory standards are met for doing so….

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10 08, 2023

OPSRISK22

2023-08-10T16:10:43-04:00August 10th, 2023|1- Financial Services Management|

Operational Risk-Based Capital Standards

Noting that operational risk is present at all banks due to most activities, the U.S. regulatory-capital rewrite would end the current approach to operational risk-based capital (ORBC).  This now subjects only categories I and II banks to ORBC and then only to the advanced measurement approach (AMA) premised on each bank’s internal models.  Consistent with the overall decision to end internal-model reliance, this section of the proposal subjects categories I, II, III, and IV banks to a new operational-risk standardized approach (SA).  This would result in very steep capital requirements based on a bank’s experience over the past ten years compared to various sources of revenue over the past three years, perhaps taking business-model changes over the course of the last three years into account if regulatory standards are met for doing so.  Steps banks have taken to prepare and avoid operational risk and respond to prior incidents are also generally not captured in a meaningful ORBC adjustment.  As a result, ORBC capital standards may be premised on risks the bank is now unlikely to encounter on a go-forward basis or offsetting the costs essential to preventing and absorbing the operational risks it now might encounter.

OPSRISK22.pdf

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