Workforce Policies and Operational Risk: Evidence from U.S. Bank Holding Companies

Abstract

Using supervisory data on operational losses from large U.S. bank holding companies (BHCs), we show that BHCs with socially responsible workforce policies suffer lower operational losses per dollar of total assets and incidence of tail risk events. The association is more pronounced for institutions that: (i) are larger and more complex, (ii) have better corporate governance, or (iii) have recently experienced larger operational losses. It also significantly varies by the type of workforce policies and the type of operational losses. Our findings have important implications for banking organization performance, risk and supervision.