Effects of the financial crisis on banking operational losses

Luke Carrivick and Eric Cope

Abstract

ABSTRACT

Although the financial crisis of the late 2000s was largely triggered by credit and market risk events, there were also substantial impacts on operational risk. We identify these impacts using nearly a decade of data from several dozen international banks reporting losses to a leading operational loss data consortium. We find that the effects of the crisis were concentrated in a few lines of business, loss categories and types of banks, in terms of both loss frequency and severity. However, those impacts usually appear to be temporary anomalies in an otherwise steady decline across all loss categories in the numbers of losses per unit of income, including extreme losses. In addition, the industry-wide magnitude of the effects of the crisis is less substantial than has been reported elsewhere in the literature.