COLLECTION OF INTERNAL LOSS DATA AND EXTERNAL LOSS DATA
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What is internal loss data in the context of operational risk management?
Internal loss data refers to records of actual operational loss events that have occurred within a bank, including the loss amounts, event types, business lines affected, and dates. It forms the primary input for quantifying operational risk under the Advanced Measurement Approach (AMA).
What is the primary purpose of collecting internal loss data in banks?
To identify, measure, and manage operational risk exposures effectively.
What minimum threshold does the Basel II framework prescribe for collecting internal loss data?
Basel II prescribes a minimum gross loss threshold of EUR 10,000 for collecting internal loss data for AMA purposes, though national supervisors may set a lower threshold. Banks must collect data on all loss events above this threshold.
What does 'loss severity' mean in operational risk loss data collection?
The monetary amount of financial loss from a single operational risk event.
What is external loss data and why is it important for operational risk management?
External loss data consists of operational loss events experienced by other banks or financial institutions, obtained through industry consortia or public sources. It is critical because internal loss histories may be insufficient to capture low-frequency, high-severity tail events.
What is 'loss frequency' in the context of operational risk measurement?
The number of operational loss events occurring over a defined time period.
Which international consortia are commonly used as sources of external operational loss data?
The most prominent consortia are the Operational Riskdata eXchange Association (ORX) and the British Bankers' Association's GOLD database. These consortia collect and anonymise loss data from member institutions for benchmarking and modelling purposes.
Which Basel II event type category covers unauthorized trading and market manipulation?
Internal fraud event type category under Basel II classification.
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