Report - Oct 2023
Following the US Federal Reserve Bank’s publication of its Basel III endgame consultation, most major jurisdictions have now published their intentions for the implementation of the standardised approach for operational risk capital, previously known as the Standardised Measurement Approach (SMA).
The Basel III and standardised approaches to capital report provides analysis using ORX global banking loss data. The extensive dataset of global banking operational losses stored in the ORX database has enabled a detailed examination of the impacts of various SMA implementations, as well as an analysis of the risk profiles of business lines.
We've made the report available for all financial institutions to download. If you're a member of ORX, log into your website account and you'll be able to access the report immediately. If you're not a member, then fill in this form to get your copy.
On 4 March 2016, the Basel Committee on Banking Supervision (BCBS) proposed a new Standardised Measurement Approach (SMA) for Pillar 1 operational risk capital. It proposed that the SMA replaces all existing basic, standardised and advanced approaches for calculating operational risk capital requirements. The subsequent revision in December 2017 confirmed that all existing approaches would be replaced with the new Standardised Approach, though allowed for some degree of supervisory discretion with regards to the final implementation.
Various factors including the Coronavirus pandemic led to delays in implementation timetables and increased uncertainty as to the details of the final implementation, most notably as to whether the calculation would include an internal loss event component.
In July 2023, the US Federal Reserve Bank published its Basel III endgame consultation, meaning that most major jurisdictions had published their intentions for the timeline for implementation, as well as the decision on the inclusion of losses within the capital calculation.
It is thus a useful time to use the 21 years of ORX global banking loss data to analyse the standardised approaches for regulatory capital that have been available over this period and compare to various implementations of the new Standardised Approach.
The Basel II standardised approach (TSA) was based on weights which related to the expected riskiness of Basel different business lines. Operational risk was in its infancy when the method was defined, and the weights were based on limited insight. This report analyses the relative riskiness of business lines based on 21 years of operational loss data.
Where possible, we provide a regional view of some of the results. However, due to the requirement to protect member anonymity, we only do this where we have a critical mass of ORX member firms meaning that only regional results for the USA and Western Europe have been shared. It should be noted when comparing results across the two regions that the typical size and business model of the members firms in each region may differ.
High-level results are presented in this report, and guidance on reading the charts can be found on page 14. A numerical appendix is available on request, which presents additional detail such as annual breakdowns and additional metrics, as well as summary statistics from the charts presented in this report.
If you're a member of ORX, log into your website account and you'll be able to access the report immediately. If you're not a member, fill out this form to get your copy.
Looking to read the full report?
Not a member? You can download a free copy of the report.
Luke Carrivick
Executive Director, ORX
Steve Bishop
Research and Information Director, ORX
Sarah Astill
Head of Risk Measurement, ORX
