Standardised approach may receive op risk charge cut, says ECB official

Strouzas, a panellist at the Professional Risk Managers’ International’s (Prmia) inaugural 2003 European Summit in Paris today, described Congressional testimony by US officials earlier this year that indicated only a dozen or so US banks would adopt Basel II, as politically motivated. He said the matter was raised at a recent G7 summit and the indications following that meeting were that adjustments to the standardised approach in CP3 would likely address US concerns.

Strouzas said he had seen the results of the third quantitative impact study (QIS3) and believed the Basel Committee had largely achieved the correct credit risk weighting. But he added that a reduction of operational risk charges for the standardised approach would be reduced to make it more attractive for banks around the world – and particularly in the US – to move from the current Basel I capital Accord to the Basel II standardised approach. It is unclear by how much this operational risk will be reduced, but it will be a factor by which the volume of loans of the bank is multiplied instead of the current proposal related to a multiple of gross income. This will be at the discretion of individual national regulators, said Strouzas.

The treatment of operational risk has been a thorny issue for international regulators, with a number of industry participants claiming that efforts to take established quantitative analysis techniques in market risk and apply it to operational risk is unrealistic.

Banks can implement Basel II via three methods: the most complex is the so-called internal-ratings based approach; the standardised approach is an intermediate-level implementation; and the other option is the ‘basic approach’, which largely draws on the existing Basel I capital requirement definitions. The Basel Committee on Banking Supervision – the body developing the Basel II infrastructure – has a stated objective to reward banks with more sophisticated risk management practices.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact or view our subscription options here:

You are currently unable to copy this content. Please contact to find out more.

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here