Using supervisory data from large U.S. bank holding companies (BHCs), we document a significant association between BHCs' operational losses and the U.S. macroeconomic environment. In adverse conditions, BHCs face higher and more volatile operational losses. The frequency of loss events...

One of the main challenges that banks face in modeling operational risk is the instability of risk estimates caused by heavy-tailed and insufficient loss data. To address these issues, we propose a loss scaling method to combine a bank's internal loss data with external loss data of other banks....

Using supervisory operational loss data of the U.S. banking industry, we analyze correlations among operational losses within banks and across banks. We find evidence of relatively high correlations among tail losses of different operational risk types within banks. The median of these...

This study documents the association between the quality of risk management practices and operational loss realizations at large financial institutions in the United States. Using detailed supervisory data, we find that companies with weak risk management practices experience higher and more...

We enhance the method of integrating scenarios proposed in Ergashev (2012) into risk models. In particular, we provide additional theoretical insights of the method with focus on stress testing Value-at-Risk models. We extend the application of the method, which is originally proposed for...

We study interest rate risk at U.S. banks by measuring the impact of interest rate changes on banks' earnings and net worth. Changes in interest rates affect (i) future earnings by altering income and expenses from rate-sensitive assets and liabilities and (ii) current net worth by altering the...

Operational risk models, such as the loss distribution approach, frequently use past internal losses to forecast operational loss exposure. However, the ability of past losses to predict exposure, particularly tail exposure, has not been thoroughly examined in the literature. In this paper, we...