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Using Loss Data to Quantify Operational Risk

32 Pages Posted: 29 Apr 2003  

Patrick de Fontnouvelle

Federal Reserve Bank of Boston - Supervision and Regulation

Virginia De Jesus-Rueff

Genentech, Inc.

John S. Jordan

FitchRisk

Eric S. Rosengren

Federal Reserve Bank of Boston - Supervision and Regulation

Date Written: April 2003

Abstract

Management and quantification of operational risk has been impeded by the lack of internal or external data on operational losses. We consider newly available data collected from public information sources, and show how such data can be used to quantify operational risk for large internationally active banks. We find that operational losses are an important source of risk for such banks, and that the capital charge for operational risk will often exceed the charge for market risk. Although operational risk capital will vary depending on the size and scope of a bank's activities, our results are consistent with the 2-7 billion dollars in capital some large internationally active banks are currently allocating for operational risk.

Keywords: Banking, Operational Risk, Basel II, Regulatory Capital, Extreme Value Theory

JEL Classification: G2

Suggested Citation

de Fontnouvelle, Patrick and De Jesus-Rueff, Virginia and Jordan, John S. and Rosengren, Eric S., Using Loss Data to Quantify Operational Risk (April 2003). Available at SSRN: https://ssrn.com/abstract=395083 or http://dx.doi.org/10.2139/ssrn.395083

Patrick De Fontnouvelle (Contact Author)

Federal Reserve Bank of Boston - Supervision and Regulation ( email )

600 Atlantic Avenue
P.O. Box 2076
Boston, MA 02210
United States
617-973-3659 (Phone)
617-973-3219 (Fax)

Virginia De Jesus-Rueff

Genentech, Inc.

1 DNA Way
South San Francisco, CA 94080-4990
United States

John S. Jordan

FitchRisk ( email )

17 State Street
New York, NY 10004
United States

Eric S. Rosengren

Federal Reserve Bank of Boston - Supervision and Regulation ( email )

600 Atlantic Avenue
P.O. Box 2076
Boston, MA 02210
United States
617-973-3090 (Phone)
617-973-3219 (Fax)

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