Basel Committee proposes changes to operational risk capital: The Basel Committee has launched a consultation, open until 6 January 2015, on a revised capital framework for operational risk. Given that existing approaches do not correctly estimate capital requirements and that gross income has proved an invalid indicator for measuring operational risk exposure, the Basel Committee is proposing to:
- replace gross income with a Business Indicator; and
- introduce a unitary, better-calibrated standardised approach, in substitution for the current approaches, which also serve as a benchmark for those banks using an Advanced Measurement Approach (AMA).
The Basel Committee has also published a report on the state of implementation of the 2011 Principles for sound management of operational risk. The report finds a widespread failure to fully implement the Principles and recommends improvements to the use of risk identification and assessment tools, to change management programmes and to senior management involvement. This last improvement should include setting operational risk appetite and tolerance. The Basel Committee also wants a strengthening of the three lines of defence, particularly by improving allocation of responsibilities. (Source: Proposals to Improve the Operational Risk Capital Framework Released by the Basel Committee)
Basel Committee updates on progress: The Basel Committee has published its seventh progress report on the implementation of the Basel framework, including:
- the successive iterations of risk-based bank capital standards (Basel II, 2.5 and III);
- the global and domestic systemically important banks (G-SIB and D-SIB) frameworks; and
- the liquidity, leverage and net stable funding ratios.
(Source: Seventh Progress Report)
Basel Committee issues leverage ratio FAQ: The Basel Committee has issued an FAQ document on the interpretation of the leverage ratio as introduced in the Basel III capital requirements framework and reviewed in January 2014. (Source: Leverage Ratio FAQ)