Comparative Analysis of Operational Risk Approaches within Basel Regulatory Frame-Work: Case Study of Spanish Saving Bank

This paper conducts an empirical analysis with regard to those methodologies proposed by the Basle Committee for the estimation of the operational capital charge. More specifically, we compare an advanced measurement approach, as the Loss Distribution Approach (LDA), versus the so called non-advanced ones, that is, the Basic Indicator Approach (BIA) and the Standardised Approach (SA). As the former establishes a direct relationship between capital consumption and bank’s gross accounting income, the actuarial model (LDA) depends on the historical operational losses to which the concept of Value at Risk (VaR) is applied. Based on the data provided by a Spanish Saving Bank which operates within the retail banking, our results confirm that the implementation of such advanced approach gives raise to a lower consumption of regulatory capital, in comparison to the BIA and SA. By focussing on the LDA model, we also highlight the supremacy of the severity on the frequency distribution when calculating the Capital at Risk (CaR). Due that the parametric profile of the severity is strongly conditioned by those losses located in the tail of such distribution, the higher degree of asymmetry and kurtosis observed, the higher capital charge in consequence.