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Benchmarking Operational Risk Stress Testing Models

Filippo Curti, Marco Migueis and Rob T. Stewart

No 2019-038, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The Federal Reserve?s Comprehensive Capital Analysis and Review (CCAR) requires large bank holding companies (BHCs) to project losses under stress scenarios. In this paper, we propose multiple benchmarks for operational loss projections and document the industry distribution relative to these benchmarks. The proposed benchmarks link BHCs? loss projections with both financial characteristics and metrics of historical loss experience. These benchmarks capture different measures of exposure and together provide a comprehensive view of the reasonability of model outcomes. Furthermore, we employ several approaches to assess the conservatism of BHCs? stress loss projections and our estimates for the conservatism of loss projections for the median bank range from the 90th percentile to above the 99th percentile of the operational loss distribution.

Keywords: Benchmarking; Operational Risk; Stress Testing (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2019-05-28
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-fmk, nep-ore and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2019-38

DOI: 10.17016/FEDS.2019.038

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