Journal of Operational Risk
ISSN:
1755-2710 (online)
Editor-in-chief: Marcelo Cruz
Need to know
- Current stress testing frameworks for operational risk often lack clarity with respect to measurement standards.
- Banks often must find a proper balance between systemic (macroeconomic) and idiosyncratic risk factors in the stress test design and evaluation.
- This paper provides a conceptual framework for designing operational risk stress tests to achieve full coverage of a bank’s operational risks.
Abstract
Current stress testing frameworks for operational risk often lack clarity with respect to measurement standards and the balance to be struck between systemic (macroeconomic) and idiosyncratic risk factors in the test design and evaluation. This paper surveys different approaches that have applied in different jurisdictions, and it provides a conceptual framework for designing operational risk stress tests to a desired likelihood standard that can achieve a full and balanced coverage of a bank’s material operational risks.
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