Problems in the US mortgage industry have shown weaknesses in the standard regulatory and economic capital approaches. Although a significant amount of discussion is occurring around how to segment portfolios or predict key variables in order to better fit the existing formulas, we believe that...

The nature of operational risk means that although it constitutes a small part of a bank’s risk profile, it includes unexpected events that could potentially cause the collapse of the entire bank. To understand the relationship between economic and regulatory operational risk capital we first...

The purpose of this paper is to provide banking regulators with another tool to crosscheck the appropriateness and consistency of levels of capital adequacy for banks. The process begins by examining banking systems and focuses on market risks and the systemic risks associated with growing...