Practical methods for measuring and managing operational risk in the financial sector: a clinical study
AbstractThis paper analyzes the implications of the advanced measurement approach (AMA) for the assessment of operational risk. Through a clinical case study on a matrix of two selected business lines and two event types of a large financial institution, we develop a procedure that addresses the major issues faced by banks in the implementation of the AMA. For each cell, we calibrate two truncated distributions functions, one for "normal" losses and the other for the "extreme" losses. In addition, we propose a method to include external data in the framework. We then estimate the impact of operational risk management on bank profitability, through an adapted measure of RAROC. The results suggest that substantial savings can be achieved through active management techniques.
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Bibliographic InfoPaper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/14158.
Date of creation: 2008
Date of revision:
Publication status: Published in: Journal of Banking & Finance (2008) v.32,p.1049-1061
Other versions of this item:
- Chapelle, Ariane & Crama, Yves & Hübner, Georges & Peters, Jean-Philippe, 2008. "Practical methods for measuring and managing operational risk in the financial sector: A clinical study," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 1049-1061, June.
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