Original Research

Calculating operational value-at-risk (OpVaR) in a retail bank

Ja'nel Esterhuysen, Paul Styger, Gary Wayne van Vuuren
South African Journal of Economic and Management Sciences | Vol 11, No 1 | a374 | DOI: https://doi.org/10.4102/sajems.v11i1.374 | © 2012 Ja'nel Esterhuysen, Paul Styger, Gary Wayne van Vuuren | This work is licensed under CC Attribution 4.0
Submitted: 02 May 2012 | Published: 07 May 2012

About the author(s)

Ja'nel Esterhuysen, North-West University
Paul Styger, North-West University
Gary Wayne van Vuuren, North West University & Fitch Ratings, UK, United Kingdom

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The management of operational value-at-risk (OpVaR) in financial institutions is presented by means of a novel, robust calculation technique and the influence of this value on the capital held by a bank for operational risk. A clear distinction between economic and regulatory capital is made, as well as the way OpVaR models may be used to calculate both types of capital. Under the Advanced Measurement Approach (AMA), banks may employ OpVaR models to calculate regulatory capital; this article therefore illustrates the differences in regulatory capital when using the AMA and the Standardised Approach (SA), by means of an example. Economic capital is found to converge with regulatory capital using the AMA, but not if the SA is used.


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