US banks’ loss-to-VAR ratios fell in Q3
Largest daily trading losses were on average 84% of forecast, compared with 105% in Q2
Wall Street top banks’ trading losses as a percentage of their value-at-risk estimates pulled back significantly in the third quarter, a sign that dealers may have recalibrated their internal models towards a higher degree of conservativeness.
Banks operating in the US must disclose their three largest trading losses each quarter. If these exceed 100% of VAR, the bank incurs a backtesting exception and can ratchet up higher capital requirements.
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