Operational risk management and an application in Turkish banking sector

Numerous scandals experienced in the recent years encourage banks to find solutions to their losses generated from their operations due to the increasing trend of products and services supplied in the finance world. Measuring operational risk that describes almost all of risk types except market and credit risk has begun to be better understood. Publication of New Basel Capital Accord have laid down some legislation in order to measure operational risk and added them to capital adequacy analysis. This paper presents basic approaches of Basel II regarding capital adequacy by implementing real data?s of a bank operating in the sector. According to basic approaches, three year period trial balances of banks? are required in the time of calculating capital adequacy. Thus, capital adequacy has been calculated based on year ended trial balances between the periods of 2006 and 2008. Maximum capital requirement has occurred in standard approach which calculates capital requirement by distributing gross income to business lines of the bank differed from basic indicator approach. Besides, minimum level of capital requirement amount has been figured by alternative standard approach that considered total amount of credit instead of gross income in the business lines of consumer banking and commercial banking.