3. The Regulatory Framework

The current regulatory framework underlines operational risk as a significant risk faced by banks and requires coverage by own funds. It includes provisions for three alternative approaches for calculating operational risk capital requirements, reflecting the broad diversity among European institutions. These approaches are namely, the (BIA), the (SIA) and the (AMA), which incorporate different levels of risk sensitivity requiring different degrees of sophistication. In this chapter we analyse the main features of all these approaches, highlighting their critical issues. Finally, we shortly describe the last proposals of the Basel Committee, which, among others, propose a new standardized measurement approach for operational risk, as part of the broader objective of balancing simplicity, comparability and risk sensitivity.