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Reputational losses and operational risk in banking

Author

Listed:
  • Franco Fiordelisi
  • Maria-Gaia Soana
  • Paola Schwizer

Abstract

Reputation is a key asset for any company whose affairs, like those of banks, are based on trust. Despite its importance, the number of studies dealing with reputational risk in the financial industry is still limited. We estimate the reputational impact of announced operational losses for a large sample of banks (both commercial and investment) in Europe and the USA between 1994 and 2008. By conducting an event study, we show that substantial reputational losses occur following announcements of 'pure' operational losses. We provide evidence that 'fraud' is the event type that generates the greatest reputational damage. 'Trading and sales' and 'payment and settlement' are the two business lines determining considerable reputational losses. We also found that losses are higher in Europe than in North America.

Suggested Citation

  • Franco Fiordelisi & Maria-Gaia Soana & Paola Schwizer, 2014. "Reputational losses and operational risk in banking," The European Journal of Finance, Taylor & Francis Journals, vol. 20(2), pages 105-124, February.
  • Handle: RePEc:taf:eurjfi:v:20:y:2014:i:2:p:105-124
    DOI: 10.1080/1351847X.2012.684218
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    File URL: http://hdl.handle.net/10.1080/1351847X.2012.684218
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Operational Risk and Financial Stability
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2017-09-18 16:56:01

    Citations

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    Cited by:

    1. Eckert, Christian & Gatzert, Nadine, 2017. "Modeling operational risk incorporating reputation risk: An integrated analysis for financial firms," Insurance: Mathematics and Economics, Elsevier, vol. 72(C), pages 122-137.
    2. repec:eee:insuma:v:78:y:2018:i:c:p:13-29 is not listed on IDEAS
    3. Nadine Gatzert & Joan T. Schmit & Andreas Kolb, 2016. "Assessing the Risks of Insuring Reputation Risk," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(3), pages 641-679, September.
    4. repec:eee:jbfina:v:91:y:2018:i:c:p:106-118 is not listed on IDEAS
    5. repec:eee:finana:v:55:y:2018:i:c:p:1-22 is not listed on IDEAS
    6. repec:eee:finsta:v:34:y:2018:i:c:p:44-60 is not listed on IDEAS
    7. Laure de Batz, 2018. "Financial Impact of Regulatory Sanctions on French Listed Companies," Working Papers IES 2018/10, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2018.
    8. repec:kap:jbuset:v:143:y:2017:i:2:d:10.1007_s10551-015-2717-y is not listed on IDEAS

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