Workforce Policies and Operational Risk: Evidence from US Bank Holding Companies

Using supervisory data on operational losses from large U.S. bank holding companies (BHCs), we show that BHCs with socially responsible workforce policies suffer lower operational losses per dollar of total assets. The association significantly varies by the type of workforce policies and the type of operational losses. It is driven not only by small frequent losses but also by severe tail operational risk events. Further, the risk-reducing effects of the socially responsible workforce policies are stronger for larger BHCs with more employees. Our findings have important implications for banking organization performance, risk, and supervision.

Automated summary

This study uses data from large U.S. bank holding companies to demonstrate that those with socially responsible workforce policies experience lower operational losses per dollar of total assets. The impact varies depending on the type of policies and losses, and is not limited to small frequent losses but includes severe tail operational risk events. Additionally, the risk-reducing effects are stronger for larger banks with more employees.