Regulatory arbitrage in the use of insurance in the new standardized approach for operational risk capital

摘要

Basel's new standardized approach (SA) for operational risk capital may allow for regulatory arbitrage through the use of insurance. Under the SA, banks will likely have an incentive to insure recurring losses. Such insurance can meaningfully reduce capital requirements even though it does not meaningfully decrease tail operational loss exposure. Several alternatives to deal with this potential regulatory arbitrage strategy are discussed.