take into account that even with the possession of perfect data collection

Take into account that even with the possession of

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take into account that even with the possession of perfect data collection processes, there will be some areas of the business that may never generate sufficient internal data to permit a comprehensive understanding of the risk profile. 5.1.2 Internal loss data Internal loss data are loss data, which are located in the banks internal sources. The tracking of internal loss data is a prerequisite for the development and the functioning of operational risk measurement methods. Internal loss data is important for tying a bank’s risk estimates to its actual loss experience. To qualify for regulatory capital purposes, a bank’s internal loss collection processes must meet the following standards, which are outlined by the Basle Committee [3]: Map its historical internal loss data into relevant categories and business lines. Loss data must be mapped into the relevant business line and event type. This subject will be described in paragraph 5.2. Objective criteria for allocating losses into the specified business lines and event types must be documented. Capture all material activities and exposures from all appropriate sub-systems and geographic location . A bank’s internal loss data must be comprehensive in that it captures material activities and exposures form all appropriate sub-systems and geographic location. Also, when any activities and exposures are excluded individually and in combination, banks must justify that this would not have any material impact on the overall risk estimates. Furthermore, a threshold must be held to for internal data collection, for example €10000. The appropriate threshold can vary between banks and even between business lines and event types within a bank. Date of event and recoveries of gross loss amounts. In addition to gross loss amounts, banks must also collect information about the data of events and recoveries of gross loss amounts, as well some descriptive information about the drivers and causes of the loss event. Assigning loss data in a centralized function or activity that are spanned to more than one business line as well as from related event over time. Several operational risk losses will not be subject to operational risk charges. Operational risk losses that are related to credit risk and have historically been included 19
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in banks credit risk database (e.g. collateral management failures) will continue to be treated as credit risk for the purpose of calculating minimum regulatory capital under this framework. Therefore, such losses will not be subject to the operational risk charge. Nevertheless, banks must identify all material operational risk, including those related to credit risk, as set out in paragraph 644 of [3]. Market risk related operational risk would be subjected to operational risk.
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