Finance and Economics Discussion Series (FEDS)

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August 2017 (Revised August 2018)

Forward-looking and Incentive-compatible Operational Risk Capital Framework

Marco Migueis

Abstract:

This paper proposes an alternative framework to set banks' operational risk capital, which allows for forward-looking assessments and limits gaming opportunities by relying on an incentive-compatible mechanism. This approach would improve upon the vulnerability to gaming of the AMA and the lack of risk-sensitivity of BCBS's new standardized approach for operational risk.

Accessible materials (.zip)

Original paper: PDF | Accessible materials (.zip)

Keywords: Banking Regulation, Operational Risk, Regulatory Capital, Incentive Compatibility

DOI: https://doi.org/10.17016/FEDS.2017.087r1

PDF: Full Paper

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Last Update: January 09, 2020