SECTION
217.161—Qualification Requirements for Incorporation of Operational
Risk Mitigants
(a) Qualification
to use operational risk mitigants. A Board-regulated institution
may adjust its estimate of operational risk exposure to reflect qualifying
operational risk mitigants if:
(1) The Board-regulated institution’s operational
risk quantification system is able to generate an estimate of the Board-regulated
institution’s operational risk exposure (which does not incorporate
qualifying operational risk mitigants) and an estimate of the Board-regulated
institution’s operational risk exposure adjusted to incorporate qualifying
operational risk mitigants; and
(2) The Board-regulated institution’s methodology
for incorporating the effects of insurance, if the Board-regulated
institution 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) Qualifying operational
risk mitigants. Qualifying operational risk mitigants are:
(1) Insurance that:
(i) Is
provided by an unaffiliated company that the Board-regulated institution
deems to have strong capacity to meet its claims payment obligations
and the obligor rating category to which the Board-regulated institution
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;
(iii) Has
a minimum notice period for cancellation by the provider of 90 days;
(iv) Has no exclusions
or limitations based upon regulatory action or for the receiver or
liquidator of a failed depository institution; and
(v) Is explicitly mapped to a potential
operational loss event;
(2) Operational risk mitigants other than
insurance for which the Board has given prior written approval. In
evaluating an operational risk mitigant other than insurance, the
Board will consider whether the operational risk mitigant covers potential
operational losses in a manner equivalent to holding total capital.
