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Capital Requirements For Operational Risk: An Incentive Approach

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  • Mohamed Belhaj

    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper proposes a simple continuous time model to analyze capital charges for operational risk. We find that undercapitalized banks have less incentives to reduce their operational risk exposure. We view operational risk charge as a tool to reduce the moral hazard problem. Our results show, that only Advanced Measurement Approach may create appropriate incentives to reduce the frequency of operational losses, while Basic Indicator Approach appears counterproductive.

Suggested Citation

  • Mohamed Belhaj, 2010. "Capital Requirements For Operational Risk: An Incentive Approach," Working Papers halshs-00504163, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00504163
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00504163
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    References listed on IDEAS

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    1. Stolz, Stéphanie, 2002. "The Relationship between Bank Capital, Risk-Taking, and Capital Regulation: A Review of the Literature," Kiel Working Papers 1105, Kiel Institute for the World Economy (IfW Kiel).
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    Cited by:

    1. Constantin ANGHELACHE & Dana Luiza GRIGORESCU & Ștefan Gabriel DUMBRAVĂ, 2020. "The main theoretical aspects regarding the capital adequacy models," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(624), A), pages 261-270, Autumn.

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    Keywords

    Operational Risk; Capital Requirements; Dividends; Basel Accords;
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