Memo to Bank CEOs: Treat OpRisk with More Respect

Ariane Chapelle and Evan Sekeris

Recent criticism of the operational risk capital framework by two senior figures in the banking industry – Peter Sands, the former chief executive of Standard Chartered, and Jamie Dimon, chief executive and chairman of JP Morgan – has sparked much debate in the banking and regulatory community in recent weeks.

The comments were made at a watershed moment for the industry, with the revised op risk capital framework stymied by transatlantic regulatory (or perhaps, de-regulatory) politics, and seemingly increasingly unlikely to be agreed upon, let alone implemented. Dimon’s comments were even picked up by the wider financial press – a rare instance of operational risk being mentioned in mainstream media.

While some of the criticisms certainly have merit and deserve further debate, we fundamentally disagree with many of the arguments made by Sands and Dimon. Both critiques contain fallacies which are regularly made in arguments against op risk capital, and we believe both, as such, are fundamentally flawed.

Both Dimon and Sands expressed their strong reservations against, if not outright opposition to, the idea of holding dedicated operational risk regulatory capital. Dimon, in