Basel II sets the pace for operational risk reform

Basel II is set to come into play in 2005, bringing a host of opportunities for vendors along with the new framework for banking supervision. Andrew Partridge examines the potential and some of the challenges for the suppliers and users of financial technology.

The second Basel Capital Accord plans to make operational risk a tangible part of the amount of capital that a bank has to hold against its risk for the first time. In doing this, banks will now start to find regulatory incentives from measuring and reducing operational risk, as the Accord’s recommendations are taken on board.

The Basel II Capital Accord covers three parts of a bank’s risk, including credit risk, market risk and now operational risk. The Accord has more scope than covering

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