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Regulatory Capital for Market and Credit Risk Integration: Is Current Regulation Always Conservative
Company: Deutsche Bundesbank
Company Url: Click here to open
Year Of Publication: 2008
Month Of Publication: May
Pages: 44
Download Count: 75
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Comment Num: 0
Language: EN
Source:
Who Can Read: Free
Date: 3-28-2009
Publisher: Administrator
Summary
In the work of the Basel Committee there has been a tradition ofdistinguishing market from credit risk and to treat both categories independentlyin the calculation of risk capital. In practice positionsin a portfolio depend simultaneously on both market and credit riskfactors. In this case, an approximation of the portfolio value functionsplitting value changes into a pure market risk plus pure credit riskcomponent can lead to underestimation of risk. It can therefore not beargued that the current regulatory approach would always be conservativefrom a risk assessment perspective. We discuss this fact in thecontext of foreign currency loans and argue that under the traditionalregulatory approach the true risk of a portfolio of foreign currencyloans would be significantly underestimated.
Author(s)
Breuer, Thomas Sign in to follow this author
Jandacka, Martin Sign in to follow this author
Rheinberger, Klaus Sign in to follow this author
Summer, Martin Sign in to follow this author
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