The frequency and severity of operational losses: a cross-country comparison

Abstract

We examine the proposition that cross-country differences in the factors determining the frequency and severity of operational losses lead to cross-country differences in the distribution and incidence of operational loss events in terms of frequency and severity. For this purpose, we consider 4388 operational loss events covering 11 countries or country groups. The results reveal differences with respect to the type of loss events prevailing in each country or country group as well as differences with respect to the dominance of events of certain type in a particular business line and corporate entity type.

Keywords:

• operational risk
• Basel II
• operational loss events
• business lines

JEL Classification:

• G32

Acknowledgements

The first author is grateful to the Australian Research Council for the Discovery Grant used to finance work on this project. We are also grateful to the Australian Centre for Financial Studies for a research grant.

Notes

¹ For example, companies that are forced to recall a faulty product typically incur huge losses.

² This makes one wonder why the Basel rules on capital requirements are applied only to banks – not that these requirements serve any meaningful purpose.