5 Questions
Which of the following is NOT one of the pillars of Basel II for the regulation of operational risk?
Pillar 4
What does Pillar 2 of Basel II focus on?
Operational risk management
What does Pillar 1 of Basel II focus on?
Regulatory capital
What does Pillar 3 of Basel II focus on?
Risk appetite
What does the three lines of defense model for controlling operational risk refer to?
Three different risk management functions
Study Notes
Basel II Pillars
- The three pillars of Basel II are Pillar 1: Minimum Capital Requirements, Pillar 2: Supervisory Review Process, and Pillar 3: Market Discipline.
Pillar 1: Minimum Capital Requirements
- Focuses on the minimum amount of capital that banks must hold to cover credit, market, and operational risks.
Pillar 2: Supervisory Review Process
- Focuses on the supervisory review process, which ensures that banks have adequate capital and risk management processes in place.
Pillar 3: Market Discipline
- Focuses on market discipline, which aims to encourage banks to disclose their risk profiles and capital adequacy to facilitate market discipline.
Three Lines of Defense Model
- Refers to a model for controlling operational risk that consists of three lines of defense: business unit management, risk management and compliance, and internal audit.
- The first line of defense is responsible for managing operational risk, the second line of defense oversees and supports risk management, and the third line of defense provides independent assurance and challenge.
Test your knowledge on operational risk management and the operational risk management framework (ORMF) in this quiz. Explore key concepts such as risk regulation, governance, appetite, and culture, and learn how these concepts apply in an operational risk context. Focus on the most testable concepts, including calculations in Basel.
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