Break up big conduct risk losses to aid modelling, say quants

New approach delivers stable measure of conduct risk VAR, says senior op risk quant

maths

Back when regulators drew up a taxonomy for categorising operational risk losses some two decades ago, things seemed simple: loss events were ascribed to one of seven categories based on a set of shared characteristics, allowing banks to map them to their own risk framework and measure their incidence accordingly.

Twenty years and the better part of a trillion dollars’ worth of misconduct-related losses later, things look a little different.

Banks’ post-crisis operational loss histories have

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