Operational Risk Capital -- Why Actuarial Approaches Work


"Operational, legal and reputation risks are sufficiently important for banks to quantify the level of such risks and to incorporate them into their assessment of their overall capital adequacy," says the June 1999 consultative paper from the Basel Committee.

But how? What type of model can meet the expectations of the regulators, recognize the unique attributes of each institution and reinforce the right behaviour in bank employees?

The Basel Committee does not yet have an answer, though it m

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