Sub-Optimality of Income Statement-Based Methods for Measuring Operational Risk Under Basel II: Empirical Evidence from Spanish Banks

20 Pages Posted: 17 Oct 2007

See all articles by Enrique Bonsón-Ponte

Enrique Bonsón-Ponte

University of Huelva - Faculty of Business

Tomás Escobar-Rodriguez

University of Huelva

Francisco Flores

affiliation not provided to SSRN

Abstract

The New Basel Capital Accord (Basel II) was created with the intention of establishing a framework in which financial entities can manage their risks in a more detailed and efficient way. Within this general reform movement, Operational Risk emerges as a fundamental variable. OR can be managed by three alternative methods: the Basic Indicator Approach, Standard Approach and Advanced Measurement Approach. The choice of which method to adopt has become of supreme interest for senior banking managers. This study analyzes the exactitude of the underlying implicit hypotheses that support each method, distinguishing between income statement based methods and the management accounting based method. In the present study the non-optimum character of the two Income Statement-based methods is empirically confirmed, in the light of the data provided by Spanish financial entities.

Suggested Citation

Bonsón-Ponte, Enrique and Escobar-Rodriguez, Tomás and Flores, Francisco, Sub-Optimality of Income Statement-Based Methods for Measuring Operational Risk Under Basel II: Empirical Evidence from Spanish Banks. Financial Markets, Institutions & Instruments, Vol. 16, No. 4, pp. 201-220, November 2007. Available at SSRN: https://ssrn.com/abstract=1021833 or http://dx.doi.org/10.1111/j.1468-0416.2007.00124.x

Enrique Bonsón-Ponte (Contact Author)

University of Huelva - Faculty of Business ( email )

Plaza de la Merced
No. 11
21002 Huelva
Spain

Tomás Escobar-Rodriguez

University of Huelva ( email )

Plaza de la Merced, No. 11
21002 Huelva
Spain

Francisco Flores

affiliation not provided to SSRN

No Address Available

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