Forward-Looking and Incentive-Compatible Operational Risk Capital Framework

17 Pages Posted: 7 Sep 2017 Last revised: 21 Feb 2019

Multiple version iconThere are 4 versions of this paper

Date Written: 2017-08-22

Abstract

This paper proposes an alternative framework to set banks’ 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 BCBS’s new standardized approach for operational risk.

Keywords: Banking Regulation, Incentive Compatibility, Operational Risk, Regulatory Capital

JEL Classification: G21, G28, G32

Suggested Citation

Migueis, Marco, Forward-Looking and Incentive-Compatible Operational Risk Capital Framework (2017-08-22). FEDS Working Paper No. 2017-087. Available at SSRN: https://ssrn.com/abstract=3029737 or http://dx.doi.org/10.17016/FEDS.2017.087r1

Marco Migueis (Contact Author)

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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