Wary of the IRC

The Basel Committee released revised proposals on charging capital for incremental risk in the trading book in July. The new rules encompass a broader range of risks beyond default - in particular, credit rating migration, spread widening and equity prices. However, there are worries the revisions may close off vast swaths of business. John Ferry reports


The Basel II framework has some gaping holes, and the credit crisis has drummed that fact home. Risk managers horribly underestimated default, correlation and liquidity risks, while it became apparent the current value-at-risk based measure for assessing capital for the trading book did not capture all risks associated with complex securitised products.

The political pressure for regulatory reform after the financial turmoil began was intense, which meant the Basel Committee on Banking

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