Is Bank CEO Pay Sensitive to Operational Risk Event Announcements?

This study reveals how operational risk events affect US bank CEO compensation from 1992-2016. Results indicate that compensation committees take operational risk into account & that recent regulations have enhanced this process. Additionally, operational risk events have a detrimental effect on options-based compensation. Lire

The Information Value of Past Losses in Operational Risk

“We show that past operational losses are informative of future losses, even after controlling for a wide range of financial characteristics. We propose that the information provided by past losses results from them capturing hard to quantify factors such as the quality of operational risk controls, the risk culture, and the risk appetite of the bank.” Lire

The Bayesian approach to analysis of financial operational risk

“The article provides a short overview of methods for constructing mathematical models in the form of Bayesian Networks for modeling operational risks under conditions of uncertainty. Let’s provide the sequence of actions necessary for creating a model in the form of the network, methods for computing a probabilistic output in BN, and give examples of […]

Imbalanced Data Issues in Machine Learning Classifiers: A Case Study

“… the methods discussed in this paper can apply to general machine learning classifiers in applications with imbalanced data issues, by using a case study in credit card fraud detection this paper calls practitioners’ attention to the imbalanced data problems therein, where class imbalance is often mistreated and lacks theoretical discussion.” Lire

Modeling Very Large Losses.

“… we propose an approach to estimate very large losses similar to that used by Fermi and Drake to estimate the existence of extraterrestrial life. It consists of supposing the event of interest is the result of a concatenation of independent factors and estimating the probability of each factor. The problem is that the events […]

Machine Learning for Categorization of Operational Risk Events Using Textual Description

“…  an overview of how machine learning can help in categorizing textual descriptions of operational loss events into Basel II event types. We apply PYTHON implementations of support vector machine and multinomial naive Bayes algorithms to precategorized Öffentliche Schadenfälle OpRisk (ÖffSchOR) data to demonstrate that operational loss events can be automatically assigned to one of […]

A Text Analysis for Operational Risk Loss Descriptions

“… we have applied text analysis methodologies to extract information from descriptions in the OpRisk database. After delicate tasks like data cleaning, text vectorization, and semantic adjustment, we apply methods of dimensionality reduction and several clustering models and algorithms to develop a comparison of their performances and weaknesses. Our results improve retrospective knowledge of loss […]

Comprehensive empirical assessment of nuclear power risks

“The opposition in a number of countries to the inclusion of nuclear energy in a sustainable energy portfolio, in part due to the dread of what the “nuclear” word inspires, has limited quantitative scientific foundation of the real benefits and risks. This has been amplified by the lack of a sound operational risk estimate due […]

Bank Capital Adequacy Framework

“This paper considers the question from a non-technical point of view and surveys the regulatory requirements for capital adequacy contained in the so-called Basel framework. It analyses all contributing parts of the Capital Adequacy Ratio (CAR), including regulatory capital, credit risk, market risk and operational risk, raising in each case the concerns of the literature as well as recent […]

Correlations in Operational Risk Stress Testing: Use and Abuse

“Evidence that the COVID-19 pandemic had minimal effect on operational risk losses in 2020 is presented and the effect of model risk is emphasized. Our results show that the existence or otherwise of significant correlations depends on the regression model used, whether data series show trends, the time window concerned, geographical location and the type of financial institution.” Lire

How Climate Change May Impact Operational Risk

“… climate change may drive operational risk losses through complex interactions between three factors: changes in human and institutional behaviors, significant and rapid changes in economic metrics and direct physical impacts.” Lire

The Status of People Risk Management in UK Banks

“… some operational risk managers are working more closely with their human resources partners to develop a more cohesive approach to people risk management. In the context of current reforms to the capital requirements for operational risk” Lire