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399801

Estimating the Regulatory Capital for Operational Risk Using Basel Approaches

Article

Last updated: 07 Jan 2025

Subjects

-

Tags

العلوم الإدارية.

Abstract

The study aimed to quantify the regulatory capital for the loan portfolio's operational risks, using Basel Committee approaches for a leading bank as a case study of Saudi Arabia.The study used the statistical programming language R to identify the regulatory capital using a model based on loss distribution. The results indicated that the standardized income-based approach generated the lowest regulatory capital because it used a beta of 12% of the 3-year average total income. However, the model based on loss allocation under the advanced measurement method generated the largest regulatory operational risk capital for the credit portfolio at a confidence level of 99.9%. On the other hand, the income-based approach generated regulatory capital with a beta of 15% of the 3-year average gross income less than the capital estimated by the loss distribution-based model. The study's results confirmed that the regulatory capital estimated by income-based methods was less than the real exposure to operational risks estimated by the model using the distribution of losses. The results of the present study will be useful to regulatory authorities, bank managers, and investors in measuring operational risk. The present study contributes to the literature on estimating and comparing regulatory capital for operational risk. However, we expect banks to stop relying on Basel Committee income-based approaches, assuming one size fits all. The results indicate that these methods underestimate the regulatory capital's assessment of the bank's operational risk under this study. In addition, the results of the current study can help academics and practitioners use real operational risk indicators rather than proxies such as cost-to-income ratios and operating expenses.

DOI

10.21608/ijaefs.2024.336966.1045

Keywords

Basel Committee, Value at Risk, Regulatory capital, confidence level

Authors

First Name

Salah Ahmed Oraby

Last Name

oraby

MiddleName

-

Affiliation

Saudi Electronic University

Email

s.oraby@seu.edu.sa

City

-

Orcid

0000-0001-6499-8429

Volume

4

Article Issue

12

Related Issue

52745

Issue Date

2025-01-01

Receive Date

2024-11-16

Publish Date

2025-01-01

Page Start

1

Page End

32

Print ISSN

2812-6394

Online ISSN

2812-6408

Link

https://ijaefs.journals.ekb.eg/article_399801.html

Detail API

http://journals.ekb.eg?_action=service&article_code=399801

Order

399,801

Type

المقالات العلمية.

Type Code

2,497

Publication Type

Journal

Publication Title

المجلة الدولية للعلوم الإدارية والاقتصادية والمالية

Publication Link

https://ijaefs.journals.ekb.eg/

MainTitle

Estimating the Regulatory Capital for Operational Risk Using Basel Approaches

Details

Type

Article

Created At

07 Jan 2025