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Bank capital requirements for market risk: the internal models approach

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Author Info
Darryll Hendricks
Beverly Hirtle

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Abstract

The increases prominence of trading activities at many large banking companies has highlighted bank exposure to market risk-the risk of loss from adverse movements in financial market rates and prices. In response, bank supervisors in the United States and abroad have developed a new set of capital requirements to ensure that banks have adequate capital resources to address market risk. This paper offers an overview of the new requirements, giving particular attention to their most innovative feature: a capital charge calculated for each bank using the output of that bank's internal risk measurement model. The authors contend that the use of internal models should lead to regulatory capital charges that conform more closely to banks' true risk exposures. In addition, the information generated by the models should allow supervisors and market participants to compare risk exposures over time and across institutions.

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Publisher Info
Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review.

Volume (Year): (1997)
Issue (Month): Dec ()
Pages: 1-12
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Handle: RePEc:fip:fednep:y:1997:i:dec:p:1-12:n:v.3no.4

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Related research
Keywords: Bank capital ; Risk;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Arturo Estrella, 1995. "A prolegomenon to future capital requirements," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 1-12. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jose A. Lopez, 1999. "Methods for evaluating value-at-risk estimates," Economic Review, Federal Reserve Bank of San Francisco, pages 3-17. [Downloadable!]
    Other versions:
  2. Beverly Hirtle, 2007. "Public disclosure, risk, and performance at bank holding companies," Staff Reports 293, Federal Reserve Bank of New York. [Downloadable!]
  3. Arturo Estrella, 1998. "Formulas or supervision? Remarks on the future of regulatory capital," Economic Policy Review, Federal Reserve Bank of New York, issue Oct, pages 191-200. [Downloadable!]
  4. A. Marchi & Luisa Mich, 1998. "Un modello per l'analisi e valutazione dei siti web: applicazione al sito del consorzio Dolomiti Superski," Quaderni DISA 011, Department of Computer and Management Sciences, University of Trento, Italy.
  5. Victoria Geyfman, 2005. "Risk-adjusted performance measures at bank holding companies with section 20 subsidiaries," Working Papers 05-26, Federal Reserve Bank of Philadelphia. [Downloadable!]
  6. Jose A. Lopez, 1997. "Regulatory evaluation of value-at-risk models," Staff Reports 33, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  7. Flavio Bazzana, 2001. "I modelli interni per la valutazione del rischio di mercato secondo l'approccio del Value at Risk," Alea Tech Reports 011, Department of Computer and Management Sciences, University of Trento, Italy, revised 14 Jun 2008. [Downloadable!]
  8. Andrew Kuritzkes & Til Schuermann & Scott M. Weiner, 2002. "Risk Measurement, Risk Management and Capital Adequacy in Financial Conglomerates," Center for Financial Institutions Working Papers 03-02, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  9. David VanHoose, 2008. "Bank Capital Regulation, Economic Stability, and Monetary Policy: What Does the Academic Literature Tell Us?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 36(1), pages 1-14, March. [Downloadable!] (restricted)
  10. Beverly Hirtle, 1998. "Bank holding company capital ratios and shareholder payouts," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Sep. [Downloadable!]
  11. Beverly J. Hirtle & Mark Levonian & Marc Saidenberg & Stefan Walter & David Wright, 2001. "Using credit risk models for regulatory capital: issues and options," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 19-36. [Downloadable!]
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