Abstract
The Basel Committee's release of the new Basel Accord and its novel operational risk class are raising questions about how regulatory capital for operational risk should be determined and is transforming the banks' view of economic capital. This paper investigates the relationship between publicly available economic capital and regulatory capital figures for 2002 and 2003 for the top 50 internationally active banks and related figures from the Basel Committee's Quantitative Impact Studies. Initially, many if not most banks will be using the simplest regulatory method, the Basic Indicator Approach, to calculate the operational risk capital charge. The Basic Indicator Approach is applied here to study the impact of different definitions of gross income resulting in different levels of operational risk capital charges.
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