Three Historical Spikes in Operational Risk Losses

Michael Grimwade

Large operational risk losses since the late 1980s have generally been idiosyncratic/random events, but they have spiked at least three times. Worryingly, each spike has been an order of magnitude larger than its predecessor, and each of these three spikes is associated with either the bursting of economic bubbles or the impacts of policy responses to economic trauma, ie:

    1. the six unexpected US-dollar interest-rate hikes in 1994, as the US recovered from an asset bubble at the end of the 1980s and the aftermath of the Savings & Loan crisis;11Between 1986 and 1995 1,043 thrifts with assets of more than US$500 billion failed (about a third of the total number of thrifts), at a cost to US taxpayers of approximately US$124 billion and to the thrift industry of another US$29 billion (see “The Cost of the Savings and Loan Crisis: Truth and Consequences”, DIC Banking Review 13(2), 26–35).
    2. the bursting of the dotcom bubble in 2001–2; and
    3. the global financial crisis of 2007, which grew out of a US residential property bubble; almost a decade later, the aftershocks continue to ripple around the world’s economy, like a malevolent Mexican wave. This is illustrated in Figure 1.1

Qu

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: