Regulatory Arbitrage in the Use of Insurance in the New Standardized Approach for Operational Risk Capital

9 Pages Posted: 25 Nov 2019

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

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

Marco Migueis (Contact Author)

Federal Reserve Board ( email )

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

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