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Capital Requirements For Operational Risk: An Incentive Approach

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  • Mohamed Belhaj

    ()
    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579)

Abstract

This paper proposes a simple continuous time model to analyze capital charges for operational risk. We find that undercapitalized banks have less incentives to reduce their operational risk exposure. We view operational risk charge as a tool to reduce the moral hazard problem. Our results show, that only Advanced Measurement Approach may create appropriate incentives to reduce the frequency of operational losses, while Basic Indicator Approach appears counterproductive.

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File URL: http://halshs.archives-ouvertes.fr/docs/00/50/41/63/PDF/DTGREQAM2010-24.pdf
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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00504163.

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Date of creation: 20 Jul 2010
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Handle: RePEc:hal:wpaper:halshs-00504163

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00504163/en/
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Related research

Keywords: Operational Risk; Capital Requirements; Dividends; Basel Accords;

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  1. Stéphanie Stolz, 2002. "The Relationship between Bank Capital, Risk-Taking, and Capital Regulation: A Review of the Literature," Kiel Working Papers 1105, Kiel Institute for the World Economy.
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