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MD&A 2Q08

8.1.4 Operating Risk


A number of rules have been published by the Central Bank (BACEN) in order to regulate Basel II in Brazil. On June 29, 2006 it published CMN Resolution no. 3380, which provides for implementation of the Operating Risk Management structure, and later Communiqué 16,137 on September 27, 2007, specifying a schedule for implementing Basel II, and it is expected that the approval process for the use of internal models should begin in 2011, for implementation in 2013.

It should be emphasized that BB put into practice a number of actions intended to ensure compliance with its operating risk management structure with the provisions of CMN Resolution 3380, and since publication of Basel II it has put into practice actions to create an actual internal management model which would also meet the regulator's specifications.

More detailed information about Management Structure and Operating Risk Management Process can be found on the Investor Relations site of Banco do Brasil (

Key Risk Indicators (KRI's)

KRI's provide numerical data on the frequency or seriousness of relevant causes, associated with risk factors and sub-factors in connection with loss events. They have a close relation with exposure to risk, i.e.: rising indicators signal increased risks.

Aforementioned indicators are being utilized as tools to assist in the management of operating risk in the internal processes of BB.

Operating Loss Exposure Limits

In order to ensure an effective management of operating risks, Banco do Brasil employs Operating Loss Exposure Limits, which are intended to establish the limits acceptable to the Bank for operating losses, which are remitted for examination every month by the Operating Risk Sub-Committee and Global Risk Committee (GRC), in order to put in place mitigating actions and to reduce exposure levels.

In this respect, the GRC created the Operating Loss Global Limit in order to allow operating loss management based on statistically pre-established tolerance levels, and to allow the detection of weaknesses associated with processes likely to cause significant losses.

The following illustration depicts the progress of BB's operating losses, according to loss event classes and in percentages.

Table 87. Monitoring of Operational Loss

Specific limits were also defined for operating loss exposure in self-service channels based on their respective financial volumes, with the purpose of encouraging mitigating actions. The following channels have limits which are regularly defined and reviewed: TAA, POS, Internet for Individuals, Withdrawals Abroad, CABB, Cellular, Lottery Ticket Sales Outlets, 24hr Bank, TAA (CEF) and Financial Manager3.

The limits of exposure to loss in these channels were reviewed in the second semester, with the purpose of inducing, for future months, the electronic fraud mitigation behavior.

Allocation of Capital

A methodology was defined for the calculation of the portion of Referential Equity Amount (RE) referring to the operating risk (Popr) as established by CMN Resolution 3,490, of 8.29.2007.

BB opted for the implementation of the Alternative Standardized Approach due: to the distribution capacity of the transactions of the Institution to the business lines, which represent different profiles of exposure to operating risk; configure a prerequisite for the implementation of advanced measurement approaches; represent the least impact on the capital structure of the institution.

Accordingly there was approval of a manual of procedures that permits the association of the Result of BB with the business lines, according to the table below:

Table 88. Monitoring of Operational Loss

3 TAA: Self-Service Terminals; POS: Storeowner debit terminal; CABB: Call Center Banco do Brasil; Lottery Ticket Sales Outlets: withdrawals performed at lottery ticket sales outlets; TAA (CEF): Terminals of CEF shared with BB.

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