Qualification requirements for incorporation of operational risk mitigants.

CFR · 2024-01-01 · US · Title 12

(a) (1) The national bank's or Federal savings association's operational risk quantification system is able to generate an estimate of the national bank's or Federal savings association's operational risk exposure (which does not incorporate qualifying operational risk mitigants) and an estimate of the national bank's or Federal savings association's operational risk exposure adjusted to incorporate qualifying operational risk mitigants; and (2) The national bank's or Federal savings association's methodology for incorporating the effects of insurance, if the national bank or Federal savings association uses insurance as an operational risk mitigant, captures through appropriate discounts to the amount of risk mitigation: (i) The residual term of the policy, where less than one year; (ii) The cancellation terms of the policy, where less than one year; (iii) The policy's timeliness of payment; (iv) The uncertainty of payment by the provider of the policy; and (v) Mismatches in coverage between the policy and the hedged operational loss event. (b) (1) Insurance that: (i) Is provided by an unaffiliated company that the national bank or Federal savings association deems to have strong capacity to meet its claims payment obligations and the obligor rating category to which the national bank or Federal savings association assigns the company is assigned a PD equal to or less than 10 basis points; (ii) Has an initial term of at least one year and a residual term of more than 90 days

official document · source cfr-2024 · id 12:§ 3.161