Implementing the operational risk framework of Basel II at a Swedish financial institution: A case study

Abstract: Starting in 2007, Basel II will take effect in Sweden and the rest of EU. It describes a more comprehensive measure of the capital requirement ratio of banks and other financial institutions. National supervisory authorities are now working to implement the framework through domestic rule making and the creation of functioning national implementation processes. Basel I, the old framework, provided both a credit and market risk perspective, but has been seen as crude and not properly taking into account how well an institution is being operated and what resources it has dedicated to risk management. How well an institution is managed can be measured and understood by looking at operational risks, which is incorporated in Basel II. This thesis looks at Basel II, with focus on the newly added operational risk framework. This is done through a case study of a medium sized financial institution.