The reputation risk is one of significant risks affecting reliability and credibility of commercial banks. It is one of the main assets Financials Institution have to calculate and keep it safe. It's a smooth slope, once your reputation is damaged, it has a direct and indirect impact on the organization income, profit and your financial strength. This subject is relatively new and the current literature deals with the need to manage the risk of reputation, identifies factors which are difficult to estimate and usually without any action plan. According to The Basel Committee on Banking Supervision [1], banks failed to recognize the reputational risks associated with their off-balance sheet vehicles, securitization schemes, overall liquidity positions, and business practices [4]. Our contribution is the mathematical analysis of the probability and effect of reputation risk's factors. This article will focus on the way to calculate Reputation Risk in Risk Assets terms and its influence on the Capital Adequacy Ratio.
Calculating Reputation Risk of Financial Institutions