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The Basel Committee for Banking Supervision has released “Principles for home-host supervisory cooperation and allocation mechanisms in the context of Advanced Measurement Approaches (AMA)” designed to clarify supervisory cooperation and information sharing on AMA, and to establish the allocation mechanisms.
This paper covers two areas regarding the implementation of operational risk to the AMA level of requirements. It is a supplement to the paper “Home-host information sharing for effective Basel II implementation” covering supervisory cooperation for banks implementing AMA. It also further develops the guidelines from “Principles for the home-host recognition of AMA operational risk capital” and addresses allocation mechanisms developed as part of a hybrid AMA. The BIS release states that the principles “do not supersede the general principles described in the original 2003 paper “High-level principles for the cross-border implementation of the New Accord”, but provides further elaboration of these principles in an operational risk context”.
The Operational Risk Subgroup of the Basel Committee's Accord Implementation Group (AIGOR) says that the paper will enhance home-host cooperation and information sharing among supervisors regarding the AMA and the hybrid AMA. It calls on those planning to implement a hybrid AMA to work with their home and host supervisors to develop allocation mechanisms that appropriately reflect the operational risk profiles of all relevant subsidiaries.
In Basel II, a "hybrid" approach for AMA banks is one that uses a combination of stand-alone AMA calculations for significant subsidiaries and an allocated portion of the group-wide AMA capital requirement for its other parts of the group – i.e. AMA for the sensitive areas but a Standardised or even lower approach for other parts of the group. This is typically being adopted by global banks who include high-risk investment banking units but also have lower risk retail operations in many countries.
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