Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Benchmarking Operational Risk Stress Testing Models
The Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) requires large bank holding companies (BHCs) to project losses under stress scenarios. In this paper, we propose multiple benchmarks for operational loss projections and document the industry distribution relative to these benchmarks. The proposed benchmarks link BHCs’ loss projections with both financial characteristics and metrics of historical loss experience. These benchmarks capture different measures of exposure and together provide a comprehensive view of the reasonability of model outcomes. Furthermore, we employ several approaches to assess the conservatism of BHCs’ stress loss projections and our estimates for the conservatism of loss projections for the median bank range from the 90th percentile to above the 99th percentile of the operational loss distribution.
Cite this item
Filippo Curti & Marco Migueis & Rob T. Stewart, Benchmarking Operational Risk Stress Testing Models, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2019-038, 28 May 2019.
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Keywords: Benchmarking ; Operational Risk ; Stress Testing
This item with handle RePEc:fip:fedgfe:2019-38
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