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Operational Risk Capital

Author

Listed:
  • Thomas Conlon

    (University College Dublin)

  • Xing Huan

    (University of Warwick - Accounting Group)

  • Steven Ongena

    (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))

Abstract

We study the response of banks to the introduction of a new capital requirement relating to operational risk. To isolate the effect of this new regulation on realized operational risk losses, we take advantage of the partial US implementation relative to full European adoption. Operational risk losses are reduced in treated banks. The extent of loss reduction depends upon the measurement approach used to calibrate operational risk capital requirements. Banks with low institutional ownership and those without binding regulatory capital constraints also present significant loss reduction. We link these findings to incentives for improved risk management and governance post treatment.

Suggested Citation

  • Thomas Conlon & Xing Huan & Steven Ongena, 2020. "Operational Risk Capital," Swiss Finance Institute Research Paper Series 20-55, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2055
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    More about this item

    Keywords

    Bank Regulation; Basel II; Measurement Approach; Monitoring; Operational Risk;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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