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Operational Risk and Risk Management Quality: Evidence from U.S. Bank Holding Companies

Author

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  • Azamat Abdymomunov

    (Federal Reserve Bank of Richmond)

  • Atanas Mihov

    (Federal Reserve Bank of Richmond)

Abstract

This study documents the association between the quality of risk management practices and operational losses at large U.S. financial institutions. Using detailed supervisory data, we find that companies with weak risk management practices experience higher and more volatile operational losses. We also present evidence that the strength of risk management practices prior to the 2008–2009 Financial Crisis has explanatory power over losses during the crisis period. Our analysis provides new evidence of the importance of risk management practices for curtailing risk at financial institutions.

Suggested Citation

  • Azamat Abdymomunov & Atanas Mihov, 2019. "Operational Risk and Risk Management Quality: Evidence from U.S. Bank Holding Companies," Journal of Financial Services Research, Springer;Western Finance Association, vol. 56(1), pages 73-93, August.
    • Handle: RePEc:kap:jfsres:v:56:y:2019:i:1:d:10.1007_s10693-017-0284-3
    DOI: 10.1007/s10693-017-0284-3
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    Cited by:

    1. Berger, Allen N. & Curti, Filippo & Mihov, Atanas & Sedunov, John, 2022. "Operational Risk is More Systemic than You Think: Evidence from U.S. Bank Holding Companies," Journal of Banking & Finance, Elsevier, vol. 143(C).
    2. Azamat Abdymomunov & Filippo Curti & Atanas Mihov, 2020. "U.S. Banking Sector Operational Losses and the Macroeconomic Environment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(1), pages 115-144, February.
    3. Filippo Curti & Marco Migueis, 2023. "The Information Value of Past Losses in Operational Risk," Finance and Economics Discussion Series 2023-003, Board of Governors of the Federal Reserve System (U.S.).
    4. Filippo Curti & W. Scott Frame & Atanas Mihov, 2022. "Are the Largest Banking Organizations Operationally More Risky?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(5), pages 1223-1259, August.
    5. Allen N. Berger & Filippo Curti & Nika Lazaryan & Atanas Mihov & Raluca A. Roman, 2023. "Climate Risks in the U.S. Banking Sector: Evidence from Operational Losses and Extreme Storms," Working Papers 21-31, Federal Reserve Bank of Philadelphia.
    6. W. Scott Frame & Ping McLemore & Atanas Mihov, 2020. "Haste Makes Waste: Banking Organization Growth and Operational Risk," Working Papers 2023, Federal Reserve Bank of Dallas.

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    More about this item

    Keywords

    Financial institutions; Operational risk; Risk management; Financial crisis;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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