The capital calculation question

William Perraudin of Imperial College criticises simple static loan loss models commonly used by regulators and banks and asks, in the light of this, if retail capital charges under Basel II are too high

The new Basel II capital charges were devised after detailed study of loan portfolio risks by financial engineering groups in the US Federal Reserve Board and the Bank of England. As special adviser to the Bank of England, I was myself closely involved in the latter of these two groups.


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