Quantification of operational risk under Basel II
Subtitle: the good, bad and ugly
By: Imad A. Moosa.
Series: Finance and capital markets series
Publisher: Palgrave Macmillan
Published: 2009
Place of publication: New York
Language: eng
Number of pages: 268
ISBN-13: 9780230222663
Subjects: Financial risk management -- Mathematical models; Bank capital -- Mathematical models; Banks and banking, International -- Risk management
Description: This book presents arguments that are critical of the Basel II Accord, particularly the advanced measurement approach to operational risk. It identifies the good, bad and ugly with respect to practices pertaining to the implementation of the operational risk provisions of Basel II. In particular, it is argued that the advanced measurement approach is not viable in terms of costs and benefits and that it is likely to distract financial institutions from the real task of managing operational risk. Some strong arguments are presented against the purely quantitative approach to operational risk management. The author demonstrates how the estimated capital charge produced by using the loss distribution approach suggested by Basel II is so sensitive to the underlying assumptions that banks can manipulate their internal models in such a way as to produce the lowest possible capital charge. Given that the advanced measurement approach will be used by large internationally active banks only, the Basel II Accord will actually boost competitive inequality when it purports to create a level playing field.
Notes: Includes index.