The Basel Committee on
Banking Supervisions 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
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