Replacing VAR: smaller banks fear expected shortfall workload

Regulators sparked a lively theoretical debate at the biggest banks by proposing the use of expected shortfall as the trading book capital metric in place of the simpler incumbent measure, value-at-risk. But for small to medium-sized banks, the issue is a practical one – do they have the resources to implement it? By Laurie Carver

Do banks have enough data to implement expected shortfall safely?

Outside a pub in London's swanky Mayfair district, the top quantitative analyst at one of the UK's biggest banks takes a gulp of his expensive lager, then shrugs in a not-my-problem kind of way. "Expected shortfall? It's not really an issue," he says. "Not for us, anyway."

Maybe so, but on the other side of the tracks, those banks with more modest resources offer a very different answer. For them the new risk measure, which the Basel Committee on Banking Supervision plans to use for trading book