Regulatory Arbitrage in the Use of Insurance in the New Standardized Approach for Operational Risk Capital

Marco Migueis

No 2020-03-30, FEDS Notes from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Basel's new standardized approach (SA) for operational risk capital may allow for regulatory arbitrage through the use of insurance. Under the SA, banks will have incentive to insure recurring losses, which can meaningfully reduce capital requirements even as it does not meaningfully decrease tail operational loss exposure. Several alternatives to deal with this regulatory arbitrage strategy are discussed.

Date: 2020-03-30
New Economics Papers: this item is included in nep-cba, nep-gen, nep-ias and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfn:2020-03-30

DOI: 10.17016/2380-7172.2479

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