An effective AMA management framework requires effective governance, risk capture and assessment, and quantification of operational risk exposure. Verification and validation of the advanced systems, including the data elements and quantification models, are critical to the integrity of the AMA framework.
Banks should institute operational risk data and assessment systems that capture the operational risks to which the firm is exposed. These systems must include credible, transparent, systematic, and verifiable processes that incorporate the four required AMA data elements.
Internal operational loss event data – Banks should use at least five years of data, support collection thresholds, and include legal losses in the quantification process no later than the date the legal reserve is established.
- External operational loss event data – Banks should have sound practices for sourcing, selecting, scaling, and modeling of external data.
- Scenario analysis – To ensure integrity of the process, banks should have a process that is clearly defined, repeatable, and transparent.
- BEICFs – Banks should have sound practices to ensure a systematic assessment of risk across the organization.
- To ensure credible estimates of operational risk exposure, the risk quantification system must include a credible, transparent, systematic, and verifiable approach for weighting each of the four data elements.
FDIC-Supervised Banks (Commercial and Savings)
Chief Financial Officer
Chief Information Officer
Chief Risk Officer
Supervisory Insights – "Operational Risk" (Summer 2006 – Volume 3, Issue 1) http://www.fdic.gov/regulations/examinations/supervisory/insights/sisum06/sisum06.pdf - PDF (PDF Help)
Interagency Supervisory Guidance on the Advanced Measurement Approaches for Operational Risk (Printable - PDF) (PDF Help)
Alfred L. Seivold, Senior Examination Specialist, Large Financial Institutions Branch, at ASeivold@FDIC.gov or (415) 808-8248
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Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).