Banks’ Measurement of Operational Risk and the Effect on Regulatory Capital

Ted Lindblom and Magnus Willesson

Chapter 15 in New Issues in Financial and Credit Markets, 2010, pp 200-212 from Palgrave Macmillan

Abstract: Abstract The exposure to operational risk is nothing new for banks, but as Moosa (2007:167) stresses: ‘The trend towards greater dependence on technology, more intensive competition, and globalization have left the corporate world more exposed to operational risk than ever before’. For a bank the occurrence of an extreme or major ‘one-off’ event in its daily operations may be even more damaging than its credit losses resulting from the current collapse of the financial markets. However, the ability of the bank to properly assess and control, or hedge itself against, the negative economic consequences of such events seems to be less developed than its management of credit and market risks (Flores et al., 2006; Wold, 2006; Moosa, 2007; Bonsón et al., 2008; Wahlström, 2009). A challenge for the bank is that the main focus of its operational risk assessment must be on the distribution tail rather than on the distribution of the most frequent losses (Wei, 2007; Moosa, 2008).

Keywords: Commercial Bank; Risk Exposure; Operational Risk; Regulatory Capital; Saving Bank (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-0-230-30218-1_16

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DOI: 10.1057/9780230302181_16

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