Impact of the Collection Threshold on the Determination of the Capital Charge for Operational Risk

In 2004, the Basel Committee on Banking Supervision (hereafter the Basel Committee) released the Revised Framework of the International Convergence of Capital Measurement and Capital Standards (hereafter Basel II). Together with new rules governing the calculation of regulatory capital charge for credit risk, Basel II introduces explicit recommendations with regard to operational risk, defined by the Basel Committee as the “risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, but excludes strategic and reputational risk” (BCBS, 2004).