Regulatory Arbitrage in the Use of Insurance in the New Standardized Approach for Operational Risk Capital
Posted: 13 Aug 2020
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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
FEDS Notes No. 2020-03-30 https://doi.org/10.17016/2380-7172.2479
Posted: 13 Aug 2020
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Date Written: March 30, 2020
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.
Suggested Citation: Suggested Citation
Migueis, Marco, Regulatory Arbitrage in the Use of Insurance in the New Standardized Approach for Operational Risk Capital (March 30, 2020). FEDS Notes No. 2020-03-30 https://doi.org/10.17016/2380-7172.2479, Available at SSRN: https://ssrn.com/abstract=3672622
Marco Migueis (Contact Author)
Board of Governors of the Federal Reserve System ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
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