This reading is a part of the syllabus for FRM Part 2 Exam in the section ‘Operational and Integrated Risk Management'

In an effort to bolster soundness standards in banking, the 2006 international regulatory agreement of Basel II requires globally active banks to include operational risk in estimating regulatory and economic capital to be held against major types of risk. This paper discusses practical issues faced by a bank in designing and implementing an operational risk capital model. Focusing on the use of the Loss Distribution Approach (LDA) in the context of the Basel Advanced Measurement Approach (AMA), pertinent topics of future research are suggested.

The paper can be downloaded from the following link:

A Review of the Key Issues in Operational Risk Capital Modeling