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1 results

  • An analysis of the feasibility of an extreme operational risk pool for banks

  • Yifei Li, Neil Allan, John Evans
  • Journal:
    Annals of Actuarial Science / Volume 13 / Issue 2 / September 2019
    Published online by Cambridge University Press:
    06 August 2018, pp. 295-307

  • Operational risk events in banks include extreme events with significant losses being incurred and with substantial impact on share prices. A pooling arrangement between banks that would be able to reduce overall costs and reduce share price impacts would seem desirable, but one of the major inhibiting factors to establish the feasibility of such a pooling arrangement is that statistical models of these extreme events are difficult to build with any reliability. This paper uses both quantitative and qualitative analysis of operational risk losses for EU and US banks over the period 2008–2014 to establish the feasibility of creating a pooling arrangement between the banks and concludes that such an arrangement might be feasible but would require compulsory membership of the pool and capping of losses.