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Operational Risk Modelling and Capital Adequacy – are There any Rewards in Greater Complexity?

Listed author(s):
  • Anghelache, Gabriela Victoria

    (Academy of Economic Studies (AES), Bucharest)

  • Cozmanca, Bogdan Octavian


    (Academy of Economic Studies (AES), Bucharest)

  • Radu, Alina Nicoleta

    (Academy of Economic Studies (AES), Bucharest)

The paper applies the methodologies proposed by Basel Committee on Banking Supervision for assessing the capital requirements in the context of operational risk to a Romanian commercial bank. The basic indicator, standard and internal measurement approaches (IMA) have been used to asses the capital requirement levels needed to cover the operational risk. The IMA is implemented using the loss distribution methodology (LDA). The capital at risk is computed from the loss distribution that aggregates, using Monte-Carlo simulations, the frequency and loss size distributions, fitted to the empirical data, for each business line and event type pair. Even though IMA is more costly and difficult to implement, it has, in some circumstances, considerable rewards in terms of capital requirements.

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Article provided by Institute for Economic Forecasting in its journal Romanian Journal for Economic Forecasting.

Volume (Year): (2011)
Issue (Month): 3 (September)
Pages: 108-131

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Handle: RePEc:rjr:romjef:v::y:2011:i:3:p:108-131
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