Is there hope in the advanced measurement approaches?

Basel II is mistaken in assuming a stable relationship between expected and unexpected losses, argues Jacques Pézier in his second article on the Basel Committee’s recent operational risk working paper.

The carrot of lower operational risk capital charges under the proposed Basel II bank capital accord is promised only to those banks using an advanced measurement approach for calculating these charges.

Major banks may be allowed to reduce their overall op risk charge to a floor of 9% of the current minimum regulatory capital for credit and market risks. That compares with the floor of 12% of regulatory capital for banks using the simpler basic and standardised approaches to calculating the