U.S. Banking Sector Operational Losses and the Macroeconomic Environment
50 Pages Posted: 26 Feb 2016 Last revised: 20 Sep 2017
Date Written: July 5, 2017
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: Suggested Citation