Associations send repo VAR protest to Basel Committee

US and UK industry associations have sent a joint letter to the Basel Committee on Banking Supervision expressing their "disappointment" that the multipliers for portfolio value-at-risk modelling of repo counterparty exposure will not be altered in the upcoming third consultation paper (CP3), expected in May.

The procedure for modelling repo counterparty VAR is found in paragraph 144 of the technical guidance, published alongside the third Quantitative Impact Study (QIS3) in October 2002. The paragraph calls for the back testing of VAR models using the most recent 250 daily observations. “Depending on the number of exceptions exceeding the ninety-ninth percentile confidence level, the output of the VAR model will be scaled up using a multiplier” that is provided in an accompanying table. And that

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