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OCC Bulletin 2011-21
June 3, 2011
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Chief Executive Officers of All National Banks, Department and Division Heads, and All Examining Personnel
The guidance attached to this bulletin continues to apply to federal savings associations.
The Office of the Comptroller of the Currency (OCC), along with the Board of Governors of the Federal Reserve System (the Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS), (collectively, the agencies) is issuing the attached guidance on the Advanced Measurement Approaches (AMA) for Operational Risk. The guidance is intended to assist banking organizations in implementing an effective AMA framework, in addressing certain common implementation issues and challenges, and in providing key considerations for addressing these challenges.
On December 7, 2007, the agencies issued the final rule, “Risk-Based Capital Standards: Advanced Capital Adequacy Framework-Basel II” (advanced approaches rule).1 The advanced approaches rule provides a risk-based regulatory capital framework that encompasses requirements for credit, operational, and market risk. For operational risk, the advanced approaches rule requires qualifying core banks2 and permits other qualifying banks to use advanced measurement approaches (AMA) to calculate risk-based capital requirements for operational risk.3
The purpose of the AMA is to enhance operational risk measurement and management. The AMA framework requires effective governance, risk capture and assessment, and quantification of operational risk exposure; however, banks have flexibility to develop operational risk measurement and management programs, processes, and tools to support the framework that are appropriate relative to banks’ activities, business environment, and internal controls. As new methods and tools are developed, the agencies anticipate that the operational risk discipline will continue to mature and converge toward a narrower range of effective risk management and measurement practices.
This interagency guidance discusses certain common implementation issues, challenges and key considerations for addressing these challenges in order to implement a satisfactory AMA framework. This guidance focuses on the combination and use of the four required AMA data elements—internal operational loss event data, external operational loss event data, business environment and internal control factors (BEICFs), and scenario analysis. Given some of the unique challenges with scenario analysis as it relates to the AMA, this data element is discussed in greater detail. Governance and validation also are discussed in this guidance given their importance in ensuring the integrity of a bank’s AMA framework.
This guidance addresses certain aspects of the minimum risk-based capital requirements for operational risk and is not intended to address the treatment of operational risk in a bank’s internal capital adequacy assessment process.
For further information, contact Maurice O. Harris, Policy Analyst, Operational Risk Policy, at (202) 649-6550.
Timothy W. LongSenior Deputy Comptroller for Bank Supervision Policyand Chief National Bank Examiner
1 The agencies’ advanced approaches rules are at 12 CFR 3, Appendix C (OCC); 12 CFR 208, Appendix F and 12 CFR 225, Appendix G (Board); 12 CFR 325, Appendix D (FDIC); and 12 CFR 567, Appendix C (OTS).
2 For simplicity, and unless otherwise indicated, the advanced approaches rule and this guidance use the term “bank” to include banks, savings associations, and bank holding companies (BHC). The terms “bank holding company” and “BHC” refer only to bank holding companies regulated by the Board and do not include savings and loan holding companies regulated by the OTS.
3 “Core” banks are those banks that must apply the advanced approaches rule under Part I, section 1(b)(1) of the advanced approaches rule.