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2002•The Journal of Risk FinanceRequires access

The Basel 2 Approach to Bank Operational Risk: Regulation on the Wrong Track

Richard J. Herring

Open publisher page 35 citations

Abstract

The banking industry has adopted an approach to managing financial risk based on economic capital, the amount of capital necessary to achieve a specified level of protection against financial ruin. In the New Basel Capital Accord, regulators have recently proposed capital regulation to reduce operational risk. In this article, the author challenges the rationale for employing a capital charge to mitigate operational risk.

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What this paper is about

The banking industry has adopted an approach to managing financial risk based on economic capital, the amount of capital necessary to achieve a specified level of protection against financial ruin. In the New Basel Capital Accord, regulators have recently proposed capital regulation to reduce operational risk. In this article, the author challenges the rationale for employing a capital charge to mitigate operational risk.

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OpenAlex reports 35 citations for this work. Citation counts describe recorded attention and do not establish research quality.

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Available abstract

The banking industry has adopted an approach to managing financial risk based on economic capital, the amount of capital necessary to achieve a specified level of protection against financial ruin. In the New Basel Capital Accord, regulators have recently proposed capital regulation to reduce operational risk. In this article, the author challenges the rationale for employing a capital charge to mitigate operational risk.

Key concepts: Capital requirement, Operational risk, Risk-adjusted return on capital, Basel II, Basel III, Risk-weighted asset, Basel I, Capital (architecture)

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