Op risk advances likely after dropping of Basel II floor, says Moody’s

Further advances in banks’ operational risk measurement and management are likely to be stimulated by the decision last week by global banking supervisors to drop the op risk ‘floor’ in their Basel II bank protective capital proposals, credit-rating agency Moody’s Investors Service said today.

Moody’s said a floor would have limited the incentive for banks to develop a more sophisticated approach to op risk measurement and management.

But now several major global banks that have made significant advances in managing op risk - hazards like fraud, technology failure and trade settlement errors - should find an additional incentive to further develop their efforts, said the agency.

Moody's added that more banks may now use advanced approaches to measuring op risk. This requires them to