On 3 December EY hosted a SUERF conference on banking reform with Sir Howard Davies, the Chairman of RBS, and Dame Colette Bowe, the Chairman of the Banking Standards Board, as the two keynote speakers. Professor David Miles (Imperial College) gave the SUERF 2015 Annual Lecture on Capital and...

In this paper we review the actual operational data of an anonymous Central European Bank, using two approaches described in the literature: the loss distribution approach and the extreme value theory (EVTʺ). Within the EVT analysis, two estimation methods were applied; the standard maximum...

How does business complexity affect risk management in financial institutions? The commonly used risk measures rely on either balance-sheet or market-based information, both of which may suffer from identification problems when it comes to answering this question. Balance-sheet measures, such as...

Recent regulatory proposals tie a financial institution's systemic importance to its complexity. However, little is known about how complexity affects banks' risk management. Using the 1996-1999 deregulations of U.S. banks' nonbanking activities as a natural experiment, we show that banks'...

Basel's new standardized approach (SA) for operational risk capital may allow for regulatory arbitrage through the use of insurance. Under the SA, banks will have incentive to insure recurring losses, which can meaningfully reduce capital requirements even as it does not meaningfully decrease...

The Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) requires large bank holding companies (BHCs) to project losses under stress scenarios. In this paper, we propose multiple benchmarks for operational loss projections and document the industry distribution relative to these...

This article evaluates whether US large bank operational risk capital requirements are forward-looking, sensitive to banks' current exposures, and allow for risk mitigation, and discusses modifications that could bring regulation closer to these goals while also highlighting the potential...

We provide the first evidence that changes in risk-based capital requirements for banks affect the real economy through international trade. Using a natural experiment – mandatory Basel II adoption in its Standardized Approach by all banks in Turkey on July 1, 2012 – we investigate the...

In this paper, we investigate the association between international banks' operational losses and macro-financial variables, Governance Indicators and banks' specific covariates. We do so in a panel data setting, which includes both censoring (since losses below a given threshold are not...

The internal models amendment to the Basel Accord allows banks to use internal models to forecast Value-at-Risk (VaR) thresholds, which are used to calculate the required capital that banks must hold in reserve as a protection against negative changes in the value of their trading portfolios. As...