Methods of Operational Risk Management
Basel II and various Supervisory bodies of the countries have prescribed various soundness standards for Operational Risk Management for Banks and similar Financial Institutions. To complement these standards, Basel II has given guidance to 3 broad methods of Capital calculation for Operational Risk
- 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 (methods include IMA, LDA, Scenario-based, Scorecard etc.)
The Operational Risk Management framework should include identification, measurement, monitoring, reporting, control and mitigation frameworks for Operational Risk.
Read more about this topic: Operational Risk
Famous quotes containing the words methods of, methods, risk and/or management:
“If you want to know the taste of a pear, you must change the pear by eating it yourself.... If you want to know the theory and methods of revolution, you must take part in revolution. All genuine knowledge originates in direct experience.”
—Mao Zedong (1893–1976)
“It would be some advantage to live a primitive and frontier life, though in the midst of an outward civilization, if only to learn what are the gross necessaries of life and what methods have been taken to obtain them.”
—Henry David Thoreau (1817–1862)
“It is not a piece of fine feminine Spitalfields silk—but is of the horrible texture of a fabric that should be woven of ships’ cables & hausers. A Polar wind blows through it, & birds of prey hover over it. Warn all gentle fastidious people from so much as peeping into the book—on risk of a lumbago & sciatics.”
—Herman Melville (1819–1891)
“This we take it is the grand characteristic of our age. By our skill in Mechanism, it has come to pass, that in the management of external things we excel all other ages; while in whatever respects the pure moral nature, in true dignity of soul and character, we are perhaps inferior to most civilised ages.”
—Thomas Carlyle (1795–1881)