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Working Paper
Operational Loss Recoveries and the Macroeconomic Environment: Evidence from the U.S. Banking Sector
Using supervisory data from large U.S. bank holding companies (BHCs), we document that operational loss recovery rates decrease in macroeconomic downturns. This procyclical relationship varies by business lines and loss event types and is robust to alternative data aggregations, macroeconomic measurement horizons and estimation methodologies. Further analysis shows that resource constraints faced by BHC risk management functions are a plausible explanation for these patterns. Our findings offer new evidence on how economic shocks transmit to banking industry losses with implications for risk ...
Working Paper
Haste Makes Waste: Banking Organization Growth and Operational Risk
This study shows that banking organization growth is associated with higher operational losses per dollar of total assets and incidence of tail risks. Event studies using M&A activity and instrumental variable regressions provide consistent evidence. The relationship between banking organization growth and operational risk varies by loss event types and balance sheet categories. We demonstrate that higher growth predicts worse operational risk realizations during the global financial crisis. These findings have implications for bank performance, risk management and supervision in a ...