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Capital and Risk: New Evidence on Implications of Large Operational Losses

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Author Info
de Fontnouvelle, Patrick
Dejesus-Rueff, Virginia
Jordan, John S.
Rosengren, Eric S.

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Abstract

Operational risk is currently receiving significant media attention, as financial scandals have appeared regularly and multiple events have exceeded one billion dollars in impact. Regulators have also been devoting attention to this risk and are finalizing proposals that would require banks to hold capital for potential operational losses. This paper uses newly available loss data to model operational risk at internationally active banks. Our results suggest that the amount of capital held for operational risk will often exceed capital held for market risk and that the largest banks could choose to allocate several billion dollars in capital to operational risk.

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File URL: http://dx.doi.org/10.1353/mcb.2006.0088
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File Function: full text
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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 38 (2006)
Issue (Month): 7 (October)
Pages: 1819-1846
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:7:p:1819-1846

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Matthew Pritsker, 1997. "Evaluating Value at Risk Methodologies: Accuracy versus Computational Time," Journal of Financial Services Research, Springer, vol. 12(2), pages 201-242, October. [Downloadable!] (restricted)
  2. Con Keating & Hyun Song Shin & Charles Goodhart & Jon Danielsson, 2001. "An Academic Response to Basel II," FMG Special Papers sp130, Financial Markets Group. [Downloadable!] (restricted)
  3. Darryll Hendricks, 1996. "Evaluation of value-at-risk models using historical data," Economic Policy Review, Federal Reserve Bank of New York, issue Apr, pages 39-69. [Downloadable!]
  4. Jeremy Berkowitz & James O'Brien, 2002. "How Accurate Are Value-at-Risk Models at Commercial Banks?," Journal of Finance, American Finance Association, vol. 57(3), pages 1093-1111, 06. [Downloadable!] (restricted)
  5. Darryll Hendricks, 1996. "Evaluation of value-at-risk models using historical data," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 334-362.
  6. Mark Carey, 1998. "Credit Risk in Private Debt Portfolios," Journal of Finance, American Finance Association, vol. 53(4), pages 1363-1387, 08. [Downloadable!] (restricted)
  7. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61. [Downloadable!] (restricted)
  8. Eva Catarineu-Rabell & Patricia Jackson & Dimitrios P. Tsomocos, 2002. "Procyclicality and the New Basel Accord: banks' choice of loan rating system," Conference Series ; [Proceedings], Federal Reserve Bank of Boston. [Downloadable!]
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  9. Christopher James, 1996. "RAROC Based Capital Budgeting and Performance Evaluation: A Case Study of Bank Capital Allocation," Center for Financial Institutions Working Papers 96-40, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  10. Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August. [Downloadable!] (restricted)
  11. Beverly J. Hirtle, 2003. "What market risk capital reporting tells us about bank risk," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 37-54. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Linda Allen & Anthony Saunders, 2004. "Incorporating Systemic Influences Into Risk Measurements: A Survey of the Literature," Journal of Financial Services Research, Springer, vol. 26(2), pages 161-191, October. [Downloadable!] (restricted)
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