Capital Requirements For Operational Risk: An Incentive Approach
AbstractThis 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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Bibliographic InfoPaper provided by HAL in its series Working Papers with number halshs-00504163.
Date of creation: 20 Jul 2010
Date of revision:
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Operational Risk; Capital Requirements; Dividends; Basel Accords;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-31 (All new papers)
- NEP-BAN-2010-07-31 (Banking)
- NEP-BEC-2010-07-31 (Business Economics)
- NEP-CTA-2010-07-31 (Contract Theory & Applications)
- NEP-REG-2010-07-31 (Regulation)
- NEP-RMG-2010-07-31 (Risk Management)
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.:
- 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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