US banks’ internal stress tests vary

The stress periods used by the largest US banks to determine a portion of their market risk capital requirements vary markedly and change frequently. 

Stressed value-at-risk-based capital requirements are calculated by running a bank’s trading portfolio through a regulatory VAR model with inputs calibrated to historical data from a 12-month period of financial stress. 

Market risk capital rules state that a firm may select a stress period that is is appropriate to the “composition and directio

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