Forward-Looking and Incentive-Compatible Operational Risk Capital Framework
17 Pages Posted: 7 Sep 2017 Last revised: 21 Feb 2019
Date Written: 2017-08-22
This paper proposes an alternative framework to set banksâ€™ operational risk capital, which allows for forward-looking assessments and limits gaming opportunities by relying on an incentive-compatible mechanism. This approach would improve upon the vulnerability to gaming of the AMA and the lack of risk-sensitivity of BCBSâ€™s new standardized approach for operational risk.
Keywords: Banking Regulation, Incentive Compatibility, Operational Risk, Regulatory Capital
JEL Classification: G21, G28, G32
Suggested Citation: Suggested Citation