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Operational Risk Capital

Thomas Conlon (), Xing Huan and Steven Ongena ()

No 15096, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study the response of banks to the introduction of a new capital requirement relating to operational risk. To isolate the effect of this new regulation on realized operational risk losses, we take advantage of the partial US implementation relative to full European adoption. Operational risk losses are reduced in treated banks. The extent of loss reduction depends upon the measurement approach used to calibrate operational risk capital requirements. Banks with low institutional ownership and those without binding regulatory capital constraints also present significant loss reduction. We link these findings to incentives for improved risk management and governance post treatment.

Keywords: Bank Regulation; Basel II; Measurement Approach; Monitoring; Operational Risk (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-ban and nep-rmg
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