Basel II: Common standard for capturing losses due to operational risk

26 January 2005 - The new regulatory capital framework for banks (Basel II) requires banks, from 2007 onwards, to capture so-called "operational risk" separately alongside credit risk and market risk and cover it with capital as well. Operational risk is, for example, the risk of loss due to criminal acts, computer system failure or natural disasters.

Banks which wish to apply an advanced approach for measuring operational risk early are in fact required to start capturing operational losses from 2005 onwards. To answer questions arising in this connection, the Association of German Public Banks (VÖB) and the Association of German Banks (BdB) have presented a common standard for capturing losses due to operational risk. The standard, which supplements the rules set by regulators, deals with the composition of an operational loss, its classification and its separation from losses resulting from credit risk or market risk.