The Basel Committee on Banking Supervision’s latest consultation on trading book capital rules signals a move away from the discredited value-at-risk (VAR) model.
Released on May 3, the consultation paper proposes a fundamental reform of how banks deal with trading risks. The initiative would close loopholes enabling banks to leave assets on trading books to reduce capital requirements.
It aims to change the model banks use to measure risks, which determines how much capital banks must hold, and abandon VAR in favour of the expected shortfall model.
VAR addresses the worst case scenario for investors. It is the...