The RASB continues to collaborate with academia, practitioners, and regulators in researching and developing next-generation OpRisk management solutions. Following our successful initial tests of the RU – the new additive metric that expresses all forms of OpRisk – we are revealing a new concept in OpRisk management, a next-generation Advanced Measurement Approach we’re calling ‘AMA-2’.
Two new modules create an integrated AMA-2 framework that combines stochastic modeling with accounting, operating, risk, and loss data:
1) Enhanced Risk & Control Self-Assessment (E-RCSA) replaces traffic-light or ‘RAG’ assessment metrics with expertly calibrated numeric weights and risk factors. This enables the calculation of a risk mitigation index (RMI) for each business component that completes an assessment, being a measure – on a scale of zero to 100 – of risk mitigation effectiveness.
2) OpRisk Calculation Engine interfaces with accounting, operating and E-RCSA systems to produce daily calculations of maximum OpRisk exposures (Inherent RUs) by product that are combined with RMIs to produce actual OpRisk exposures (Residual RUs).
AMA-2 produces daily OpRisk analytics in RUs by business component (cost centre), product, customer, and location with the facility to monitor accumulating exposures to risk against pre-approved risk limits also set in RUs. AMA-2’s analytics in RUs are directly comparable across the vertical and horizontal dimensions of the enterprise.
The combining of exposure-to-risk in Residual RUs and loss history within AMA-2’s stochastic modeling creates the potential, over time, to achieve high precision loss predictions and capital calculations through dynamic statistical correlation and back-testing.
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Next Generation Advanced Measurement Approach – ‘AMA-2’
The slides here present an overview of AMA-2, a next generation Advanced Measurement Approach. Through the introduction of two new modules into the existing AMA framework, banks can take their OpRisk analytics, loss predictions, and capital calculations to the next level.
AMA-2 integrates multiple data sources (accounting, operating, risk, and loss history) within a common exposure-to-risk identification and quantification framework. The combining of aggregated exposures-to-risk and loss history creates the potential to achieve high precision OpRisk loss predictions and capital calculations by enabling dynamic statistical correlation and back-testing between these two variables.