Regulatory Arbitrage in the Use of Insurance in the New Standardized Approach for Operational Risk Capital
9 Pages Posted: 25 Nov 2019
There are 3 versions of this paper
Regulatory Arbitrage in the Use of Insurance in the New Standardized Approach for Operational Risk Capital
Number of pages: 9
Posted: 25 Nov 2019
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Regulatory Arbitrage in the Use of Insurance in the New Standardized Approach for Operational Risk Capital
Journal of Operational Risk, Vol. 16, No. 1
Number of pages: 12
Posted: 23 Mar 2021
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Regulatory Arbitrage in the Use of Insurance in the New Standardized Approach for Operational Risk Capital
FEDS Notes No. 2020-03-30 https://doi.org/10.17016/2380-7172.2479
Posted: 13 Aug 2020
Date Written: November 12, 2019
Abstract
Basel’s new standardized approach (SA) for operational risk capital may allow for regulatory arbitrage through the use of insurance. Under the SA, banks will have incentive to insure recurring losses, which can meaningfully reduce capital requirements even as it does not meaningfully decrease tail operational loss exposure. Several alternatives to deal with this regulatory arbitrage strategy are discussed.
Keywords: Operational Risk, Capital Requirements, Regulatory Arbitrage, Insurance
JEL Classification: G21, G28, G32
Suggested Citation: Suggested Citation
Migueis, Marco, Regulatory Arbitrage in the Use of Insurance in the New Standardized Approach for Operational Risk Capital (November 12, 2019). Available at SSRN: https://ssrn.com/abstract=3485866 or http://dx.doi.org/10.2139/ssrn.3485866
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