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Question: Critically Compare the Implementation of Operational Risk Management from Basel Acord to Basel II and later to Basel III. Explain the difference between the basic indicator approach, standardized approach and advance measurement approach for calculating operational risk capital. Answer: Operational risk the risk of the loss generated from the failed internal processes or the inadequate and the various systems from the external events. Operational risk is inclusive of legal risk but excludes the reputational and strategic risks (Walter, 2010). Operational management on the other side is the risk management for the operational risk that I similar to the risk management process. The process entails, the assessment, measurement, identification, mitigation, reporting and monitoring of the risks brought into the play (Pezier, 2002). Basel accords are those which are introduced by the Basel Committee on Banking Supervision (BCBS), which is a committee of the banking supervisory authorities which was incorporated by the central bank governors of the ten group countries in the year 1975. The sole reason was to provide guidelines for banking regulations. Basel 1, 2 and 3 originate from this committee with an attempt to enhance banking credibility through extended bank supervision countrywide. The Basel 1 was brought into place to specify the minimum ratio of capital to the risk weighted assists for the banks, while the Basel 2 was created to introduce the supervisory responsibilities and in turn extend the measures to strengthen the minimum capital requirement. The Basel 3 was put in place to be able to promote the essence for liquidity buffers which an additional layer of equity (Wahlstrm, 2009). The three are completely different from each other based on various aspects when they are evaluated. The paper shall analyze the differences existing between the 3 Basel directives. From the initial processing of the Basel, each directive had the sole purpose of the establishment. The Basel 1 main role was of enumeration of a minimum capital requirement for the banks within their jurisdiction. The Basel 2 was put in place to bring into the game the responsibilities of supervision and extend the minimum capital requirement introduced by the Basel 1. On the other hand, Basel 3 was brought to being to specify the additional buffer of equity to be upheld by the banks (Lam, 2013). Regarding the risks regarding the other Basels, Basel 1 remains to be the minimal risk focus as compared to the other Basel. At Basel 2 is when a 3 pillar approach to the management of risk was introduced. And to deal with more risks escalating an assessment of liquefying risk was introduced among the other risks that had been introduced (Belluz, et al, 2010). The Basel did not so much become similar to the risks they regarded while implementing the same. The general risk was credit risk that was considered at the Basel 1. In the Basel 2, various risks were put under scrutinizes such as the reputational, operation and the strategic risks which would affect the banks. Basel 3 was not more of a new face in the directive issued since the only risk that was added to the list was the liquidity risks for the business at the time (Pezier, 2002). As compared to the other Basels, Basel 1 is backward-looking since it only considered those assets which were in the current portfolio of the banks at the moment. Basel 2 was contrary of the Basel 1 as it was forward-looking as it was capital risk sensitive. The Basel 3s future risks predictability is forward-looking as the macroeconomic environment factors are put in place in the addition of the individual bank criteria (Moosa, 2007). Another common difference is also the capital structure. The Basel 1 is defined as the regulatory capital which implies for the uniformity for all, while Basel 2 is all about the risk-weighted capital as compared to Basel 3 which dealt with the cyclical capital to ensure the cyclic and the variations in the market (Chapelle, et al, 2004). The variation between Basel 1, 2 and 3 accords is the variation in the objective in which they are established to enshrine. However, they are navigated to manage banking risks in light swiftly affecting the global business environ, although they are different in requirement and standards. With the continued advancements in business integrations and globalization, the banks are interrelated across the globe. And in the event the banks take uncalculated risk, very disastrous situations may arise of the massive amount of funds that are involved and the negative impact can be dispersed in various nations. Such financial crisis began in the year 2008 which caused a very substantial economic loss is a good example (Chernobai, et al, 2008). References: Belluz, D.D.B., F, J. and S, B.J., 2010. Operational risk management. Enterprise Risk Management, pp.279-301. Chapelle, A., C, Y., H, G. and P, J.P., 2004. Basel II and Operational Risk: Implications for risk measurement and management in the financial sector. Chernobai, A.S., S.T. and F, .J. 2008. Operational risk: a guide to Basel II capital requirements, models, and analysis (Vol. 180). John Wiley Sons. Lam, J., 2013. Operational Risk Management. Enterprise Risk Management: From Incentives to Controls, Second Edition, pp.237-270. Moosa, I.A., 2007. Operational risk management. Palgrave Macmillan. Pezier, J., 2002. Operational risk management (No. icma-dp2002-21). Henley Business School, Reading University. Pezier, J., 2002. A constructive review of Basel's proposals on operational risk (No. icma-dp2002-20). Henley Business School, Reading University. Wahlstrm, G., 2009. Risk management versus operational action: Basel II in a Swedish context. Management Accounting Research, 20(1), pp.53-68. Walter, K., 2010. Operational Risk Management.