Presentation Date
10-31-2024
Document Type
Proceeding (Published)
Abstract
Operational risk capital regulation is moving from internal to standardized models - from the advanced measurement approach (AMA) to the standardized measurement approach (SMA). All know the results of these changes: politically connected banks will further decrease their equity financing making bank failures and taxpayer-backed bailouts more likely. Yet the goal of operational risk modeling must be to create useful models that capture relevant aspects of reality and improve decision-making. Therefore, operational risk modeling should assimilate seven fundamental properties into an operational risk managerial framework: well-aligned incentives, inaccuracies in the data, accounting for empirical realities, acknowledging unknown unknowns, communicating uncertainty, creating feedback loops, and recognizing dynamics.
Conference Title
Northeast Business & Economics Association (NBEA) 2024
Sponsorship or Institution
Molloy University
Location
Danbury, Connecticut
Recommended Citation
Stewart, Robert T., "Operational Risk, Capital Regulation, and Model Risk" (2024). Faculty Presentations: Business. 15.
https://digitalcommons.molloy.edu/bus_facpre/15
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Copyright held by author(s), upload allowed
Comments
PUBLISHED BY THE NORTHEAST BUSINESS & ECONOMICS ASSOCIATION © 2024 The Northeast Business & Economics Association reserves the right to publish the Proceedings in both print and electronic formats. The individual authors retain the copyright over their own articles.