Seminar by Xing Huan

Aula della Scuola di Dottorato, Palazzo Cà Borin, Via del Santo 22 - ore 17.00


Basel II and Bank Operational Losses

Seminar by Xing Huan, Warwick Business School

Banks are required to hold capital as a buffer against future losses and as a market impediment to discourage excessive risk taking. We examine whether the introduction of capital specific to operational risk under the Basel II framework resulted in a reduction in operational losses. To isolate this effect, we take advantage of the staggered implementation of Basel II in the US compared with other countries. Employing an entropy-balanced sample of 918 bank-year observations for 208 banks from 2000 to 2015, we find that the introduction of operational risk capital under Basel II leads to a significant reduction in operational losses in treated banks. Findings indicate that Basel II implementation has been effective in reducing bank operational losses, especially in the presence of strong regulatory and supervisory practices.