Basel II norms define operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Basel II is the international capital adequacy framework for banks that prescribes capital requirements for credit risk, market risk and operational risk. There are three approaches under Basel II to measure and manage operational risk: the Basic Indicator Approach, which is based on annual revenue of the Financial Institution; the Standardized Approach, which is based on annual revenue of each broad business line; and the Advanced Measurement Approaches, which rely on the bank's internally developed risk measurement framework.

1. Basel II norms on Operational
Risk
Presented by-
Nahid Anjum

2. Agenda
• Operational risk
• Basel II norms on operational risk
• Operational risk approaches
• Methods of operational risk management

3. Operational risk
• a risk arising from execution of a company's
business functions
• focuses on the risks arising from the people,
systems and processes through which a
company operates
• According to basel II regulations, operational
risk is the risk of loss resulting from
inadequate or failed internal processes,
people and systems, or from external events

4. Basel II norms on operational risk
• The Basel Committee defines operational risk
as:
– "The risk of loss resulting from inadequate or
failed internal processes, people and systems or
from external events."
• The Basel II definition of operational risk
excludes, for example, strategic risk - the risk
of a loss arising from a poor strategic business
decision

5. Basel II norms on operational risk
• Basel II is the international capital adequacy
framework for banks that prescribes capital
requirements for credit risk, market risk and
operational risk.

6. Operational risk approaches
Operational risk
Advanced
Basic indicator Standardized
measurement
approach approach
approach

7. Methods of operational risk
management
• Basic Indicator Approach - based on annual
revenue of the Financial Institution
• Standardized Approach - based on annual
revenue of each of the broad business lines of
the Financial Institution
• Advanced Measurement Approaches - based
on the internally developed risk measurement
framework of the bank adhering to the
standards prescribed

8. Thank you