Regulatory arbitrage: back to basics

Risk analysis


Since the market risk amendment to the Basel capital Accord was introduced in the mid-1990s, there has been recurring discussion about the multiplier applied to internal value-at-risk estimates in arriving at the associated minimum regulatory capital requirement. As far as I can tell, this is best characterised as a 'regulatory comfort factor'. Apparently, a multiplier of between three and four represented a consensus among national banking supervisors as a level of capital that

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