The second challenge I wanted to touch on is banks' integration of insurance in their processes for quantifying operational risk. As many of you are aware, Basel II contains a provision whereby banks using an advanced measurement approach for operational risk could adjust their calculated operational-risk exposure to reflect reductions due to operational-risk mitigants, such as insurance, subject to certain limitations.
According to the Basel II framework, a bank's risk-mitigation calculations must reflect the bank's insurance coverage in a manner that is transparent in its relationship to, and consistent with, the actual likelihood and impact of loss used in the bank's overall determination of its operational-risk capital.