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Banks’ Measurement of Operational Risk and the Effect on Regulatory Capital

In: New Issues in Financial and Credit Markets

Author

Listed:
  • Ted Lindblom
  • Magnus Willesson

Abstract

The exposure to operational risk is nothing new for banks, but as Moosa (2007:167) stresses: ‘The trend towards greater dependence on technology, more intensive competition, and globalization have left the corporate world more exposed to operational risk than ever before’. For a bank the occurrence of an extreme or major ‘one-off’ event in its daily operations may be even more damaging than its credit losses resulting from the current collapse of the financial markets. However, the ability of the bank to properly assess and control, or hedge itself against, the negative economic consequences of such events seems to be less developed than its management of credit and market risks (Flores et al., 2006; Wold, 2006; Moosa, 2007; Bonsón et al., 2008; Wahlström, 2009). A challenge for the bank is that the main focus of its operational risk assessment must be on the distribution tail rather than on the distribution of the most frequent losses (Wei, 2007; Moosa, 2008).

Suggested Citation

  • Ted Lindblom & Magnus Willesson, 2010. "Banks’ Measurement of Operational Risk and the Effect on Regulatory Capital," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Franco Fiordelisi & Philip Molyneux & Daniele Previati (ed.), New Issues in Financial and Credit Markets, chapter 15, pages 200-212, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-0-230-30218-1_16
    DOI: 10.1057/9780230302181_16
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    Cited by:

    1. Hafiz Waqas Kamran & Abdelnaser Omran & Shamsul Bahrain Mohamed-Arshad, 2019. "Risk Management, Capital Adequacy and Audit Quality for Financial Stability: Assessment from Commercial Banks of Pakistan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(6), pages 654-664, June.

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