Scaling operational loss data and its systemic risk implications
Failing to adopt a scaling methodology when including external data in operational risk calculations could lead to a distortion of capital charges and possibly systemic risk in a banking system relying on consortium data. Here, Roberto Torresetti and Claudio Nordio propose a scaling methodology to help overcome these shortcomings and compare the outcome with respect to alternative methodologies on a real operational data sample
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The regulatory definition of operational risk is the loss expected over the next 12 months resulting from inadequate or failed internal processes, people and systems or from external events (excluding reputational and strategic risk).
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