Operational Risk - Opportunities for Accounting Research

Journal of Law and Financial Management, Vol. 7, No. 2, pp. 26-35, December 2008

12 Pages Posted: 12 Dec 2009

See all articles by Patrick J. McConnell

Patrick J. McConnell

Macquarie University, Applied Finance Centre

Date Written: December 1, 2008

Abstract

In January 2008, the so-called Basel II regulations came into force for banks in the major industrial economies. Developed over many years, these new regulations are, at the highest level, designed to improve risk management in individual financial institutions and across the industry, through a regulatory regime based on minimum capital requirements. While the main thrust of Basel II focuses on Credit Risk, the concept of ‘Operational Risk Capital’ was introduced, requiring banks to retain specific capital to cover operational losses. Much debate has taken place in the industry as to how this new capital requirement should be calculated but, during these deliberations, accounting perspectives on control and reporting have rarely been to the fore. Since Operational Risk Capital must be reported to shareholders and the public from 2008, this is a deficiency that should be remedied. This paper first describes Basel II and the specific requirements for Operational Risk Capital. It then discusses some of the practical issues of implementation, highlighting areas where an accounting perspective could add value before, finally, identifying potential areas where useful research could be undertaken.

Keywords: Basel II, Operational Risk, Regulatory Capital, Accounting Research

JEL Classification: M40, M41, G11

Suggested Citation

McConnell, Patrick J., Operational Risk - Opportunities for Accounting Research (December 1, 2008). Journal of Law and Financial Management, Vol. 7, No. 2, pp. 26-35, December 2008 , Available at SSRN: https://ssrn.com/abstract=1520822

Patrick J. McConnell (Contact Author)

Macquarie University, Applied Finance Centre ( email )

New South Wales 2109
Australia

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