Advanced Measurement Approach

The Advanced Measurement Approach (AMA) is a method banks use to calculate how much capital they need to cover potential losses from their lending and investment activities. Instead of relying on standard formulas, banks develop sophisticated models to assess risks accurately based on their unique portfolios and behaviors. This approach allows banks to hold capital that better reflects their actual risk levels, encouraging safer practices and more efficient capital use. Regulators review and approve these models to ensure they are robust and reliable, promoting overall financial stability.