An Analysis of the Feasibility of an Extreme Operational Risk Pool for Banks

Posted: 10 Jun 2018

See all articles by John R. Evans

John R. Evans

Centre for Analysis of Complex Financial Systems

Date Written: December 1, 2017

Abstract

Operational risk events in banks include extreme events with significant losses being incurred and with substantial impact on share prices. A pooling arrangement between banks that would be able to reduce overall costs and reduce share price impacts would seem desirable, but one of the major inhibiting factors to establish the feasibility of such a pooling arrangement is that statistical models of these extreme events are difficult to build with any reliability. This paper uses both quantitative and qualitative analysis of operational risk losses for European(EU) and US banks over the period 2008~2014 to establish the feasibility of creating a pooling arrangement between the banks and concludes that such an arrangement might be feasible but would require compulsory membership of the pool and capping of losses.

Keywords: Extreme Operational Risk Losses, Pooling of Losses, Insurance of Extreme Events

JEL Classification: G21, G22

Suggested Citation

Evans, John R., An Analysis of the Feasibility of an Extreme Operational Risk Pool for Banks (December 1, 2017). Available at SSRN: https://ssrn.com/abstract=3184669

John R. Evans (Contact Author)

Centre for Analysis of Complex Financial Systems ( email )

PO Box 363
Summer Hill, 2130
Australia

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