ADVANCED MEASUREMENT APPROACH: FDIC SUPERVISORY GUIDANCE

 

The federal banking agencies have issued guidance to clarify supervisory expectations and to highlight key considerations to implement an effective advanced measurement approach (AMA) framework.  The 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. 

Highlights:
  • 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 bank is exposed.  These systems must include credible, transparent, systematic, and verifiable processes that incorporate the four required AMA data elements.

  1. 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.

    2.
  2. External operational loss event data – Banks should have sound practices for sourcing, selecting, scaling, and modeling of external data.

    3.
  3. Scenario analysis – To ensure integrity of the process, banks should have a process that is clearly defined, repeatable, and transparent.

    4.
  4. 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.

Since the supervisory guidance is not applicable to institutions with total assets less than $1 billion, we have not recreated the supervisory guidance in its entirety, but it may be accessed by going to www.fdic.gov and searching for "Interagency Guidance on the Advanced Measurement Approaches for Operational Risk."

 

 

Compliance Handbook Search

STAY CONNECTED

Nebraska Bankers Association

233 South 13th Street, Suite 700
Lincoln, NE 68508
​402-474-1555
​Digital Millennium Copyright Act Policy