Dexia rejected AMA over uncertain capital relief
Public finance specialist rejected AMA prior to break-up, finding capital benefit might not offset costs, but fellow Belgian bank BNP Paribas Fortis argues in favour of op risk modelling
Banking group Dexia decided not to adopt the advanced measurement approach (AMA) last year after concluding the prospective capital benefits were unclear – one of the findings of an in-house study that also argued the operational risk community is questioning the efficiency of the loss data approach.
“Last year, the opportunity for Dexia to move from the standardised approach to the AMA for operational risk management was examined. The final proposal was not to do it for a number of reasons, most of them financial: additional resources to be deployed without assurance that the perceived benefits – reduced regulatory capital needs – would at least compensate for the additional costs,” says Ludwig Van Wemmel, director of operational risk management at Belfius Bank & Insurance – Dexia’s Belgian banking arm, which was sold to the country’s government last year and rebranded at the end of March.
But Van Wemmel’s counterpart at another of Belgium’s big four banks – BNP Paribas Fortis – argues there is more to the AMA than capital relief.
“The true value in the AMA is that capital is the catalyst for your operational risk management,” says Peter Hoflijk, head of operational risk and permanent control at the bank’s Brussels headquarters. “It also allows you to go to the end of things; it allows you to make operational risk very concrete and keep it alive, and then people start using it for their day-to-day risk management.”
Hoflijk also argues that op risk data is not complete without the AMA. “I’ve seen op risk data in banks without the AMA, and it’s woolly,” he says.
The Dexia study came to the opposite conclusion, says Van Wemmel: “Our study revealed that the operational risk community is questioning the AMA approach on the efficiency of the loss data model approach.”