  On March 4th 2016 the Basel Committee on Banking Supervision published a
consultative document where a new methodology, called the Standardized
Measurement Approach (SMA), is introduced for computing Operational Risk
regulatory capital for banks. In this note, the behavior of the SMA is studied
under a variety of hypothetical and realistic conditions, showing that the
simplicity of the new approach is very costly on other aspects: we find that
the SMA does not respond appropriately to changes in the risk profile of a
bank, nor is it capable of differentiating among the range of possible risk
profiles across banks; that SMA capital results generally appear to be more
variable across banks than the previous AMA option of fitting the loss data;
that the SMA can result in banks over- or under-insuring against operational
risks relative to previous AMA standards. Finally, we argue that the SMA is not
only retrograde in terms of its capability to measure risk, but perhaps more
importantly, it fails to create any link between management actions and capital
requirement.
