Finance and Economics Discussion Series (FEDS)
August 2017 (Revised August 2018)
Forward-looking and Incentive-compatible Operational Risk Capital Framework
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
PDF: Full Paper