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A series of proposals to enhance the Basel II framework was announced by the Basel Committee in January 2009. The proposals included: revisions to the Basel II market risk framework; the guidelines for computing capital for incremental risk in the trading book; and proposed enhancements to the Basel II framework. [8]
The Basel Accord was augmented in 1996 with a framework for market risk, which included both a standardised approach and a modelled approach, the latter based on value at risk. [ 1 ] Basel II: the new capital framework
The Basel II accord proposes to permit banks a choice between two broad methodologies for calculating their capital requirements for credit risk. The other alternative is based on internal ratings . Reforms to the standardised approach to credit risk are due to be introduced under the Basel III: Finalising post-crisis reforms .
Worldwide adoption of the Basel II Accord, beginning in 1999 and nearing completion today, gave further impetus to the use of VaR. VaR is the preferred measure of market risk, and concepts similar to VaR are used in other parts of the accord. [1]
The definition of operational risk, adopted by the European Solvency II Directive for insurers, is a variation adopted from the Basel II regulations for banks: "The risk of a change in value caused by the fact that actual losses, incurred for inadequate or failed internal processes, people and systems, or from external events (including legal ...
Exposure at default or (EAD) is a parameter used in the calculation of economic capital or regulatory capital under Basel II for a banking institution. It can be defined as the gross exposure under a facility upon default of an obligor.
Advanced measurement approach (AMA) is one of three possible operational risk methods that can be used under Basel II by a bank or other financial institution.The other two are the Basic Indicator Approach and the Standardised Approach.
In the context of operational risk, the standardized approach or standardised approach is a set of operational risk measurement techniques proposed under Basel II capital adequacy rules for banking institutions. Basel II requires all banking institutions to set aside capital for operational risk.