Forward-Looking and Incentive-Compatible Operational Risk Capital Framework

16 Pages Posted: 18 Sep 2018

Multiple version iconThere are 4 versions of this paper

Date Written: September 11, 2018

Abstract

This paper proposes an alternative framework for setting banks’ operational risk capital, which allows for forward-looking assessments and limits gaming opportunities by relying on an incentive-compatible mechanism. This approach promises to mitigate the vulnerability to gaming of the advanced measurement approach as well as the lack of risk sensitivity of the Basel Committee on Banking Supervision’s new standardized approach for operational risk.

Keywords: banking regulation, operational risk, regulatory capital, incentive compatibility

Suggested Citation

Migueis, Marco, Forward-Looking and Incentive-Compatible Operational Risk Capital Framework (September 11, 2018). Journal of Operational Risk, Vol. 13, No. 3, 2018. Available at SSRN: https://ssrn.com/abstract=3247536

Marco Migueis (Contact Author)

Federal Reserve Board ( email )

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

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