Capital Adequacy Beyound Basel: Banking, Securities, and by Hal S. Scott

By Hal S. Scott

''In Capital Adequacy past Basel: Banking, Securities, and coverage, Hal Scott seems past the second one new release of the Basel ideas for banks to teach that banking ideas don't healthy simply with the actions of securities or insurance companies, which have interaction in several actions and whose failure poses less hazard to the economy. the shortcoming of bank-based principles to deal properly with diverse job hazards is mirrored within the trouble in employing Basel ideas to financial institution preserving businesses that interact in nonbanking task via non-bank subsidiaries.'' The ebook additionally addresses the Basel method of operational chance, suggesting that operational hazard is intensely tough to spot and quantify. It questions why capital could be required for low-loss, high-frequency occasions, that are handled via reserves or provisions, or high-loss, low-frequency occasions which are handled via coverage. the most chance for which banks, and different agencies, carry the main capital is company threat, and Basel calls for no capital for this.

Show description

Read or Download Capital Adequacy Beyound Basel: Banking, Securities, and Insurance PDF

Similar geometry and topology books

Convex Optimization and Euclidean Distance Geometry

Convex research is the calculus of inequalities whereas Convex Optimization is its program. research is inherently the area of the mathematician whereas Optimization belongs to the engineer. In layman's phrases, the mathematical technology of Optimization is the research of ways to make a sensible choice while faced with conflicting requisites.

Extra info for Capital Adequacy Beyound Basel: Banking, Securities, and Insurance

Sample text

0 a The percentages in the second column indicate the odds of observing the number of exceptions specified in the first column under the assumption that the VaR model is correct. Source: BCBS (1996b). to the situation with credit risk models, regulators have the luxury of rich and plentiful data to test market risk models. It is relatively straightforward to compare model outputs (forecasts) with actual outcomes (realizations). The BCBS requires banks to perform backtesting on a quarterly basis using one year (about 250 trading days) of data.

The BCBS laid out several alternative approaches to calculating market risk capital charges for options. The simplified approach, available to banks that use only purchased options, are functions of the market value of the option (money-ness) and the market value of the underlying security. For banks that also write options, several intermediate approaches are available. These approaches involve the calculation of delta, gamma, and vega of the options (the delta-plus approach) or the somewhat more advanced scenario approach based on matrix values of the underlying position.

Specific risk is defined as the bank’s gross equity position, while general risk applies only to net positions. 1. 60 (>24 months) 8 Other Source: Authors’ compilation based on BCBS (1996a). 4% if the portfolio is considered both liquid and well diversified; otherwise, the charge is 8%. The general market risk charge is 8%. Thus, the total market risk charge can be as much as 16%. As with interest rate instruments, equity derivatives and off-balance sheet positions held in the trading book should be included in the market risk calculation.

Download PDF sample

Rated 4.11 of 5 – based on 33 votes