Operational risk, capital regulation and model risk

Robert Stewart

Journal of Operational Risk

Abstract: Operational risk capital regulation is moving from internal to standardized models – from the advanced measurement approach to the standardized measurement approach. These proposed changes will lead to more of the same: politically connected banks will further decrease their equity financing, making bank failures and taxpayer-backed bailouts more likely. Yet the goal of operational risk modeling must be to create useful models that capture relevant aspects of reality and improve decision-making. Therefore, operational risk modeling should assimilate seven fundamental properties into an operational risk managerial framework: well-aligned incentives; awareness of of data inaccuracies; explanation of empirical realities; acknowledgement of unknown unknowns; communication of uncertainty; creation of feedback loops; and recognition of dynamics.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/node/7961170 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ3:7961170

Access Statistics for this article

More articles in Journal of Operational Risk from Journal of Operational Risk
Bibliographic data for series maintained by Thomas Paine ().