Estimation of Economic Capital Concerning Operational Risk in a Brazilian Banking Industry Case

Abstract

The advance of globalization of the international financial market has implied a more complex portfolio risk for the banks. Furthermore, several points such as the growth of e-banking and the increase in accounting irregularities call attention to operational risk. This article presents an analysis for the estimation of economic capital concerning operational risk in a Brazilian banking industry case making use of Markov chains, extreme value theory, and peaks over threshold modelling. The findings denote that some existent methods present consistent results among institutions with similar characteristics of loss data. Moreover, even when methods considered as goodness of fit are applied, such as EVT-POT, the capital estimations can generate large variations and become unreal.