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FEDS Note: An Approach to Quantifying Operational Resilience Concepts

Chase Englund

This paper uses public data disclosed in eight bank holding companies’ “living wills”, or Resolution Plans, to examine and test how operational resilience can contribute to financial system stability. The banks, each subject to the Large Institution Supervision Coordinating Committee (LISCC) supervisory program, interact in a complex network of Financial Market Utilities (FMUs). By employing complementary public data on operational exposures and benchmarks for operational disruption developed in existing research, we construct plausible estimates of how various disruption events would impact the financial system. This paper provides a tangible, reproducible example of how concepts discussed in recent regulatory agency guidance on operational resilience can be employed for risk analysis and scenario testing. It also demonstrates how network mapping can aid in this type of analysis. The estimates generated here indicate that disruptions stemming from tail-end operational risk events extend beyond absolute financial losses, and are likely to be large enough to pose a systemic risk to the financial system.