The Basel II Capital Accord, which stipulates the bank's capital adequacy requirements, defines operational risk as the risk of loss resulting from accounting errors, system failures, misconduct, or natural disasters, and so on. This accord requires operational risk to be measured and controlled separately from market risk and credit risk. While the advanced measurement approach (AMA), where the most sophisticated risk management methodologies are used, allows the banks to use their own internal model for calculating operational risk, no standard measurement method has been established. We conduct a research and development on methods with which financial institutions can measure operational risk.
