Key compromises made on op risk
London – The 99.9% soundness standard for operational risk modelling should not be regarded as a fixed target, according to a US regulator closely involved in drafting the Basel II document.
"On the soundness standard, there is recognition that 99.9% has to be regarded as a soft standard, given that we haven't even classified the distribution," said Roger Cole, senior associate director of the banking, supervision and regulation division of the Federal Reserve in Washington, DC. He added that in the US, large institutions are using an actuarial approach, with most using a poission distribution on frequency and a lognormal – "or something similar" – on the fat tail distribution for
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