Why The Operational-Risk Capital Rules Make No Sense

While there are many risks for which regulatory capital is a vital panacea, operational risk is not among them.  The proposed approach to these capital standards makes it still more clear that regulators don’t trust themselves or banks and thus deploy the only tool they seem to know – ever-higher capital – no matter the cost and, more important, the risk.  In fact, the best way to address operational risk is to spend money, not put it in a capital piggybank regulators can shake to hear coins rattle when they worry even though getting the coins out in a hurry will prove devilishly difficult.

M081423.pdf