Abstract
The recent financial crisis has again evoked interest in regulation of bank risks in general and of market risks in particular. Heavy losses on trading portfolios incurred by some of the largest banks have elicited deficiencies in their internal models and processes for managing market risks. The magnitude of losses and the volume of government-sponsored bailouts have raised doubts about the effectiveness of regulatory approaches proposed by the Basel Committee on Banking Supervision in the mid-1990s and later incorporated into Basel II. These drawbacks were the main reason underlying the revision of the market risk capital regulation passed on by the Basel Committee in 2009 and laid the first building block in the 2010 reform package known as Basel III. The Basel capital requirements for market risks are discussed in the paper. The latest modifications to the internal models approach are shown to significantly increase minimum capital requirements for market risk and hence undermine its incentive-compatible design.
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Lobanov, A. (2012). Current Trends in Prudential Regulation of Market Risk: From Basel I to Basel III. In: Sornette, D., Ivliev, S., Woodard, H. (eds) Market Risk and Financial Markets Modeling. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-27931-7_13
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DOI: https://doi.org/10.1007/978-3-642-27931-7_13
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