Forward-looking and Incentive-compatible Operational Risk Capital Framework

Migueis, Marco

doi:10.17016/FEDS.2017.087r1

Working Paper

Forward-looking and Incentive-compatible Operational Risk Capital Framework

Abstract: This paper proposes an alternative framework to set banks? operational risk capital, which allows for forward-looking assessments and limits gaming opportunities by relying on an incentive-compatible mechanism. This approach would improve upon the vulnerability to gaming of the AMA and the lack of risk-sensitivity of BCBS?s new standardized approach for operational risk.

Keywords: Banking Regulation; Incentive Compatibility; Operational Risk; Regulatory Capital;

JEL Classification: G21; G28; G32;

https://doi.org/10.17016/FEDS.2017.087r1