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Estimation of Economic Capital Concerning Operational Risk in a Brazilian Banking Industry Case

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  • Helder Ferreira de Mendonça
  • Délio José Cordeiro Galvão
  • Renato Falci Villela Loures

Abstract

The advance of globalization of the international financial market has implied a more complex portfolio risk for the banks. Furthermore, several points such as the growth of e-banking and the increase in accounting irregularities call attention to operational risk. This article presents an analysis for the estimation of economic capital concerning operational risk in a Brazilian banking industry case making use of Markov chains, extreme value theory, and peaks over threshold modelling. The findings denote that some existent methods present consistent results among institutions with similar characteristics of loss data. Moreover, even when methods considered as goodness of fit are applied, such as EVT-POT, the capital estimations can generate large variations and become unreal.

Suggested Citation

  • Helder Ferreira de Mendonça & Délio José Cordeiro Galvão & Renato Falci Villela Loures, 2010. "Estimation of Economic Capital Concerning Operational Risk in a Brazilian Banking Industry Case," Working Papers Series 213, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:213
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    References listed on IDEAS

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    1. Marco Moscadelli, 2004. "The modelling of operational risk: experience with the analysis of the data collected by the Basel Committee," Temi di discussione (Economic working papers) 517, Bank of Italy, Economic Research and International Relations Area.
    2. Ariane Chapelle & Yves Crama & Georges Hubner & Jean-Philippe Peeters, 2004. "Basel II and Operational Risk: Implications for risk measurement and management in the financial sector," Working Paper Research 51, National Bank of Belgium.
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    1. Tabak, Benjamin M. & Takami, Marcelo & Rocha, Jadson M.C. & Cajueiro, Daniel O. & Souza, Sergio R.S., 2014. "Directed clustering coefficient as a measure of systemic risk in complex banking networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 394(C), pages 211-216.

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