Operational Risk in Bank Governance and Control: How to Save Capital Requirement Through a Risk Transfer Strategy. Evidences from a Simulated Case Study

Risk Governance and Control: Financial Markets & Institutions, Vol. 5, Issue 2, 2015, pp. 142-159.

Posted: 6 Aug 2015

See all articles by Enzo Scannella

Enzo Scannella

University of Palermo - d/SEAS

Giuseppe Blandi

University of Palermo

Date Written: August 6, 2015

Abstract

Operational risk management in banking has assumed such importance during the last decades. It has become increasingly important to measure, manage, and assess the impact of operational risk in the economics of banking. The paper aims to demonstrate how an effective operational risk management provides mitigating effects on Capital-at-Risk in banking. The paper provides evidences that an implementation of an operational risk transfer strategy reduces bank capital requirement and capital costs. The paper adopts the loss distribution approach, the Monte Carlo simulation, and copula methodologies to estimate the regulatory capital and simulate the operational risk transfer strategy in banking.

Keywords: operational risk, risk transfer, banking, Basel Accord, risk management, financial regulation.

JEL Classification: G01, G2, G18, G21, G24, G28, G32.

Suggested Citation

Scannella, Enzo and Blandi, Giuseppe, Operational Risk in Bank Governance and Control: How to Save Capital Requirement Through a Risk Transfer Strategy. Evidences from a Simulated Case Study (August 6, 2015). Risk Governance and Control: Financial Markets & Institutions, Vol. 5, Issue 2, 2015, pp. 142-159. . Available at SSRN: https://ssrn.com/abstract=2640550

Enzo Scannella (Contact Author)

University of Palermo - d/SEAS ( email )

Viale delle Scienze, edificio 13
Palermo, 90124
Italy
+3909123895305 (Phone)
+39091489346 (Fax)

HOME PAGE: http://www.enzoscannella.com

Giuseppe Blandi

University of Palermo ( email )

Viale delle Scienza
Palermo, 90128
Italy

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