Operational Risk Is More Systemic than You Think: Evidence from U.S. Bank Holding Companies

60 Pages Posted: 31 Jul 2018 Last revised: 14 Jan 2020

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Filippo Curti

Federal Reserve Banks - Federal Reserve Bank of Richmond

Atanas Mihov

Federal Reserve Bank of Richmond

John Sedunov

Villanova University - Department of Finance

Date Written: January 10, 2010

Abstract

While operational risk is generally perceived as idiosyncratic with limited systemic implications, we document that operational risk significantly threatens financial stability. Using supervisory data on large U.S. bank holding companies (BHCs) over 2002:Q1-2016:Q4, we find operational losses increase systemic risk through both direct channels that impair market values of loss- experiencing BHCs and spillover channels to related institutions. Findings are driven by tail events, are more pronounced for systemically important and closer-to-distress BHCs, and vary by business lines, event types, and financial and economic environments. Results add to the operational risk and systemic risk literatures, and have key policy implications.

Keywords: Banking, Operational Risk, Systemic Risk

JEL Classification: G15, G18, G19, G21, G32

Suggested Citation

Berger, Allen N. and Curti, Filippo and Mihov, Atanas and Sedunov, John, Operational Risk Is More Systemic than You Think: Evidence from U.S. Bank Holding Companies (January 10, 2010). Available at SSRN: https://ssrn.com/abstract=3210808 or http://dx.doi.org/10.2139/ssrn.3210808

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Filippo Curti (Contact Author)

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

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

Atanas Mihov

Federal Reserve Bank of Richmond ( email )

530 East Trade Street
Charlotte, NC 28202
United States

John Sedunov

Villanova University - Department of Finance ( email )

800 Lancaster Ave.
Villanova, PA 19085
United States
610-519-4374 (Phone)

HOME PAGE: http://homepage.villanova.edu/john.sedunov/

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