VAR replacement may be too volatile, banks warn

Criticism of expected shortfall has been muted, but concerns are growing

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BIS headquarters, home of the Basel Committee

Fears are growing that expected shortfall – the mooted replacement for value-at-risk in trading book capital rules – may prove too volatile, Gary Dunn, a risk analytics expert at Morgan Stanley, told attendees at an industry conference on Tuesday.

The new measure is a derivative of VAR that is seen as a better way of capturing tail risk. Many banks already use it for economic risk measurement purposes, so criticisms of its use in a capital context – as proposed by the Basel Committee on Banking

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