Reputational Losses and Operational Risk in Banking

Posted: 10 Mar 2011  

Franco Fiordelisi

University of Rome III - Department of Business Studies; Middlesex University - Business School

Paola Schwizer

University of Parma

Maria-Gaia Soana

University of Parma

Date Written: March 9, 2011

Abstract

Reputation is a key asset for any company whose affairs are based on trust like banks. Despite its importance, the number of studies dealing with reputational risk in financial industry is still limited. We estimate the reputational impact of announced operational losses for a large sample of financial companies in Europe and in the U.S. between 1994 and 2008. By running an event study, we show that substantial reputational losses occur following announcements of “pure” operational losses. We provide evidence that “fraud” is the event type that generates the most reputational damage. “Trading and sales" and “payment and settlement” are the two business lines determining crucial reputational losses. We also find that reputational losses are higher in Europe than in North America.

Suggested Citation

Fiordelisi, Franco and Schwizer, Paola and Soana, Maria-Gaia, Reputational Losses and Operational Risk in Banking (March 9, 2011). Available at SSRN: https://ssrn.com/abstract=1782247 or http://dx.doi.org/10.2139/ssrn.1782247

Franco Fiordelisi (Contact Author)

University of Rome III - Department of Business Studies ( email )

Via Silvio D'Amico 77
Via Silvio D'Amico 77
Rome, RM 00145
Italy

HOME PAGE: http://host.uniroma3.it/docenti/fiordelisi/?home

Middlesex University - Business School ( email )

The Burroughs
London, NW4 4BT
United Kingdom

Paola Schwizer

University of Parma ( email )

Via J.F. Kennedy 6
Parma, 43100
Italy

Maria-Gaia Soana

University of Parma ( email )

Via Kennedy 6
Parma, 43100
Italy

Paper statistics

Abstract Views
1,440