Impacts of the COVID-19 pandemic on operational losses

Abstract

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The main objective of the present study was to determine whether the COVID-19 pandemic impacted the frequency and severity of financial institutions' operational losses. We selected four types of operational-risk events and, applying linear regression, concluded that the pandemic impacted the severity of operational losses. In terms of the frequency of operational losses, we observed no statistically significant difference between pre- and postpandemic losses; however, regarding the severity of losses, we observed an increase in the postpandemic period for the aggregate data, and when analyzing the types of operational-risk events individually, we observed that the frequency of some events increased and others decreased after the pandemic, necessitating a detailed investigation into the reasons for the increase or decrease in the severity of losses.

Keywords

• operational risk
• financial institution
• operational losses
• COVID-19 pandemic
• risk management