Database Reference
In-Depth Information
•
Commodity risk
: The first thing the bank must do is express its commodity
holdings in a standard unit of measure and value them at the current spot
rate in the national currency. Then it has to value the commodities that it
currently owns separately from the commodities that it has agreed to buy
or sell in the future. It must apply a spread rate to the net of what it has
agreed to buy and sell, to account for any movement in prices in the future.
Operational risk
Operational risk can be quantified using very simplified assumptions. The
standardized approach uses revenue as a proxy for both scale of operations and
their complexity and a percentage of that revenue is added to the "exposed" value.
The different lines of business have different factors to account for their risks.
Business line
Required capital as a percentage of sales
Corporate finance
18 percent
Trading and sales
18 percent
Retail banking
12 percent
Commercial banking
15 percent
Payment and settlement
18 percent
Agency services
15 percent
Asset management
12 percent
Retail brokerage
12 percent
According to the accord as part of the bank's internal operational risk assessment
system, the bank must systematically track relevant operational risk data, including
material losses by the business line. Its operational risk assessment system must be
closely integrated into the risk management processes of the bank. For instance, this
information must play a prominent role in risk reporting, management reporting,
and risk analysis. The bank must have techniques for creating incentives to improve
the management of operational risks throughout the firm. There must be regular
reporting of operational risk exposures, including material operational losses, to
business unit management, senior management, and to the board of directors.
The bank must have procedures for taking appropriate action according to the
information within the management reports.
Search WWH ::
Custom Search