Bank regulation and stability
an examinationof the Basel market risk framework ; [joint fall conference 'Basel III and beyond, held by the Deutsche Bundesbank and the Centre for European Economic Research (ZEW) in Eltville from 19 to 20 October 2011]
Published on 30. April 2012
Book
Paperback/Softback
43 pages
978-3-86558-806-7 (ISBN)
Unfortunately, price unknown
Article is exhausted; no reprint
Description
In attempting to promote bank stability, the Basel Committee on Banking Supervision (2006) provides a framework that seeks to control the amount of tail risk that large banks take in their trading books. However, banks around the world suffered sizeable trading losses during the recent crisis. Due to the size and prevalence of losses, a formal examination of whether the Basel framework allows banks to take substantive tail risk in their trading books without a capital requirement penalty is of particular interest. In this paper, we provide such an examination and show that the Basel framework indeed allows banks to do so. Hence, our paper supports the view that the Basel framework leaves room for considerable improvements regarding the treatment of tail risk