Reason for hope

Risk analysis


The original Basel I Accord was initiated in the mid-1980s just as long-dated derivatives were emerging as an important risk management tool. It was recognised that these contracts gave rise to credit exposure of indefinite future magnitude on the books of market-makers. At the time, such exposure was material but comparatively small. This, combined with the perceived urgency in implementing the Accord, resulted in the simple (I might say simplistic) mark-to-market plus add-on

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