A framework for the analysis of reputational risk

Sergio Scandizzo

Abstract

ABSTRACT

In this paper we present a framework for the identification, assessment, monitoring and reporting of reputational risk. After a brief overview of the relevant literature, we discuss the definition and the nature of reputational risk for financial institutions, highlighting its relationship with asymmetric information, its similarity to the concept of financial capital, and the existence of both internal and external reputational-risk drivers. We propose an assessment framework based on the difference between stakeholder expectations and company performance, and provide a practical example of how such an approach might work. Finally, we present a reporting and monitoring framework that takes into account external and internal risk drivers as well as new products and existing transactions.