Toward an efficient people-risk capital allocation for financial firms: evidence from US banks

摘要

Although people are a very important asset for financial firms, they are a key source of risk. Banks must allocate regulatory capital for covering their people-risk exposure. By using the Algo OpData (TM) data set from US banks, and based on the loss distribution approach, we first estimate people-value-at-risk (people-VaR), assuming perfect correlation among people-risk categories but nonperfect dependence, for which the multivariate fast Fourier transformation is proposed. The diversified people-VaR is provided as a key indicator of an efficient capital allocation, and the traditional risk-adjusted return on capital measure is then readapted to evaluate the people-risk-adjusted performance.