Operational Risk: The Sting is Still in the Tail but the Poison Depends on the Dose

Abstract

This paper investigates the generalized parametric measurement methods of aggregate operational risk in compliance with the regulatory capital standards for operational risk in the New Basel Capital Accord (Basel II). Operational risk is commonly defined as the risk of loss resulting from inadequate or failed internal processes and information systems, from misconduct by people or from unforeseen external events. Our analysis informs an integrated assessment of the quantification of operational risk exposure and the consistency of current capital rules on operational risk based on generalized parametric estimation.

Keywords: Working Paper, Financial risk, Bank regulations, Risk management, Economic models