Advances in Risk Management

(Michael S) #1

CHAPTER 1


Impact of the Collection


Threshold on the


Determination of the


Capital Charge for


Operational Risk


Yves Crama, Georges Hübner∗and Jean-Philippe Peters


1.1 INTRODUCTION

In 2004, the Basel Committee on Banking Supervision (hereafter the Basel
Committee) released the Revised Framework of the International Conver-
gence of Capital Measurement and Capital Standards (hereafter Basel II).
Together with new rules governing the calculation of regulatory capital
charge for credit risk, Basel II introduces explicit recommendations with
regard tooperational risk, defined by the Basel Committee as the “risk of loss
resulting from inadequate or failed internal processes, people and systems
or from external events. This definition includes legal risk, but excludes
strategic and reputational risk” (BCBS, 2004).


∗Georges Hübner gratefully acknowledges financial support from Deloitte Luxembourg and
the Luxembourg School of Finance. This paper has won the Operational Risk & Compliance
Achievement Award 2006, hosted byOperational Risk Magazine, in the best academic paper
category.


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