Operational Risk Modelling and Capital Adequacy – are There any Rewards in Greater Complexity?

Gabriela Victoria Anghelache, Bogdan-Octavian Cozmanca () and Alina Nicoleta Radu
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Gabriela Victoria Anghelache: Academy of Economic Studies (AES), Bucharest
Alina Nicoleta Radu: Academy of Economic Studies (AES), Bucharest

Journal for Economic Forecasting, 2011, issue 3, 108-131

Abstract: The paper applies the methodologies proposed by Basel Committee on Banking Supervision for assessing the capital requirements in the context of operational risk to a Romanian commercial bank. The basic indicator, standard and internal measurement approaches (IMA) have been used to asses the capital requirement levels needed to cover the operational risk. The IMA is implemented using the loss distribution methodology (LDA). The capital at risk is computed from the loss distribution that aggregates, using Monte-Carlo simulations, the frequency and loss size distributions, fitted to the empirical data, for each business line and event type pair. Even though IMA is more costly and difficult to implement, it has, in some circumstances, considerable rewards in terms of capital requirements.

Keywords: operational risk; basic indicator approach; standardized approach; internal measurement approach; loss distribution methodology; Monte-Carlo simulation (search for similar items in EconPapers)
JEL-codes: C15 C16 E58 G21 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:rjr:romjef:v::y:2011:i:3:p:108-131

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