Implications of Alternative Operational Risk Modeling Techniques

46 Pages Posted: 2 Mar 2005

See all articles by Patrick de Fontnouvelle

Patrick de Fontnouvelle

Federal Reserve Bank of Boston - Supervision and Regulation

John S. Jordan

FitchRisk

Eric S. Rosengren

Federal Reserve Bank of Boston - Supervision and Regulation

Multiple version iconThere are 2 versions of this paper

Date Written: February 2005

Abstract

Quantification of operational risk has received increased attention with the inclusion of an explicit capital charge for operational risk under the new Basle proposal. The proposal provides significant flexibility for banks to use internal models to estimate their operational risk, and the associated capital needed for unexpected losses. Most banks have used variants of value at risk models that estimate frequency, severity, and loss distributions. This paper examines the empirical regularities in operational loss data. Using loss data from six large internationally active banking institutions, we find that loss data by event types are quite similar across institutions. Furthermore, our results are consistent with economic capital numbers disclosed by some large banks, and also with the results of studies modeling losses using publicly available "external" loss data.

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Suggested Citation

de Fontnouvelle, Patrick and Jordan, John S. and Rosengren, Eric S., Implications of Alternative Operational Risk Modeling Techniques (February 2005). NBER Working Paper Series, Vol. w11103, pp. -, 2005. Available at SSRN: https://ssrn.com/abstract=663485

Patrick De Fontnouvelle (Contact Author)

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

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John S. Jordan

FitchRisk ( email )

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New York, NY 10004
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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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