CAPITAL REQUIREMENTS FOR OPERATIONAL RISK: AN INCENTIVE APPROACH

Mohamed Belhaj ()

Working Papers from HAL

Abstract: This paper proposes a simple continuous time model to analyze capital charges for operational risk. We find that undercapitalized banks have less incentives to reduce their operational risk exposure. We view operational risk charge as a tool to reduce the moral hazard problem. Our results show, that only Advanced Measurement Approach may create appropriate incentives to reduce the frequency of operational losses, while Basic Indicator Approach appears counterproductive.

Keywords: Operational Risk; Capital Requirements; Dividends; Basel Accords (search for similar items in EconPapers)
Date: 2010-07-20
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00504163v1
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