VAR replacement may be too volatile, banks warn

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

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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