This piece examines how operational risk losses mature over time and the implications this has for regulatory modelling, particularly in the context of stress testing frameworks. Drawing on data from ORX, it explores the timing of loss recognition, highlights the limitations of current modelling approaches that typically concentrate losses into a single period, and details how significant operational risk events can continue to grow for years after initial reporting.
The analysis provides insights into the development and maturity of losses, offering guidance on how models might better reflect the reality of operational risk events for more accurate capital outcomes. Below is a Loss Maturity Analysis workbook that summarises an ORX analysis of operational risk loss maturity, using quarterly update histories from the ORX global banking loss database.
