Group allocation paper’s legal entity calculation angers industry
Cover Story
The group allocation problem arises under the advanced measurement approach (AMA), by which firms have to calculate their operational risk regulatory capital using mathematical models, which in turn use data gathered on operational losses. Respondents to the Basel Committee’s third consultative paper (CP3) had three general objections to the allocation of op risk by individual subsidiary units. First, modelling for each unit would be difficult due to the lack of data within some (especially
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