Incremental concerns
The Basel Committee released revised proposals on charging capital for incremental risk in the trading book in July. The new rules cover a broader range of risks beyond default, but some fear they may close off vast swathes of business. By John Ferry
The Basel II framework has some gaping holes, and the credit crisis has drummed that fact home. Risk managers drastically underestimated default, correlation and liquidity risks, while it became apparent that 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
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