EconPapers    
Economics at your fingertips  
 

Operational Risk Management and Implications for Bank’s Economic Capital – a Case Study

Radovan Chalupka and Petr Teply

No 2008/17, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: In this paper we review the actual operational data of an anonymous Central European Bank, using two approaches described in the literature: the loss distribution approach and the extreme value theory (“EVT”). Within the EVT analysis, two estimation methods were applied; the standard maximum likelihood estimation method and the probability weighted method (“PWM”). Our results proved a heavy-tailed pattern of operational risk data consistent with the results documented by other researchers in this field. Additionally, our research demonstrates that the PWM is quite consistent even when the data is limited since our results provide reasonable and consistent capital estimates. From a policy perspective, it should be noted that banks from emerging markets such as Central Europe are exposed to these operational risk events and that successful estimates of the likely distribution of these risk events can be derived from more mature markets.

Keywords: operational risk; economic capital; Basel II; extreme value theory; probability weighted method (search for similar items in EconPapers)
JEL-codes: G18 G21 G32 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2008-09, Revised 2008-09
New Economics Papers: this item is included in nep-eff, nep-fmk and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://ies.fsv.cuni.cz/default/file/download/id/8933 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://ies.fsv.cuni.cz/default/file/download/id/8933 [301 Moved Permanently]--> https://ies.fsv.cuni.cz/default/file/download/id/8933)

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:fau:wpaper:wp2008_17

Access Statistics for this paper

More papers in Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies Contact information at EDIRC.
Bibliographic data for series maintained by Natalie Svarcova ().

 
Page updated 2024-02-18
Handle: RePEc:fau:wpaper:wp2008_17