New Method Lowers Financial Sector Risk, Boosts Bank Profitability
The paper analyzes how a new method for measuring operational risk in the financial sector affects capital requirements. By using a mix of internal and external data, the method shows that the amount of capital needed to cover operational risk can be significantly lower than previously thought. This reduction varies depending on the type of business and events involved. The study also suggests that actively managing operational risk can lead to cost savings for banks, but the impact of reducing operational losses depends on how well the data is calibrated.