U.S. Banking Sector Operational Losses and the Macroeconomic Environment

50 Pages Posted: 26 Feb 2016 Last revised: 20 Sep 2017

See all articles by Atanas Mihov

Atanas Mihov

Federal Reserve Bank of Richmond

Filippo Curti

Federal Reserve Banks - Federal Reserve Bank of Richmond

Azamat Abdymomunov

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: July 5, 2017

Abstract

Using supervisory data from large U.S. bank holding companies (BHCs), we document a significant association between BHCs' operational losses and the U.S. macroeconomic environment. In adverse conditions, BHCs face higher and more volatile operational losses. The frequency of loss events increases. So does average severity, driven by large individual loss events. Further, in an adverse environment, underlying operational losses surface more quickly and have lower recovery rates. Our analysis provides new evidence on the exposure of banking organizations to macroeconomic shocks with implications for risk management practices and supervisory policy.

Keywords: Operational Risk; Operational Losses; Macroeconomic Environment; Banking Sector; Stress Testing

JEL Classification: G21, G28, G29

Suggested Citation

Mihov, Atanas and Curti, Filippo and Abdymomunov, Azamat, U.S. Banking Sector Operational Losses and the Macroeconomic Environment (July 5, 2017). Available at SSRN: https://ssrn.com/abstract=2738485 or http://dx.doi.org/10.2139/ssrn.2738485

Atanas Mihov (Contact Author)

Federal Reserve Bank of Richmond ( email )

530 East Trade Street
Charlotte, NC 28202
United States

Filippo Curti

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Azamat Abdymomunov

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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