Basel II to help community banks manage op risk

Chicago -- Although most US community banks - small institutions with usually less than $1 billion in assets - will not be forced to start calculating an operational risk capital charge under the US’s version of the Basel II framework, they are nonetheless becoming more aware of the importance of developing an understanding of operational risk. US regulators are now actively encouraging community banks to put op risk programmes in place, but bank executives themselves are also taking the initiative by developing their own op risk frameworks.

Under the current Basel II framework in the US, as outlined in the advance notice of prop-osed rulemaking (ANPR), community banks are expected to remain on the Basel I framework unless they actively opt for Basel II. But the existence of a capital charge for op risk has raised the profile of that risk, regulators say. "I see an important indirect impact in that Basel II is causing a lot of people in the industry to renew their attention towards operational risk," says Cathy Lemieux, vice