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  • 2015 Spring: Volume 14, Issue 1
  • A Conceptual Framework for Examining the Impact of Basel 2.5 on Market Risk Capital

    • Pat Obi ;
    • Shomir Sil

    Title:

    A Conceptual Framework for Examining the Impact of Basel 2.5 on Market Risk Capital

    Author(s):

    Pat Obi
    Shomir Sil

    Publication Date:

    2015

    Journal Title:

    The Journal of Finance Issues

    Volume Number:

    14

    Issue Number:

    1

    Abstract:

    This study presents a conceptual framework that highlights the overreaching impact of Basel 2.5 on market risk capital. The Basel accords provide the basis for the calculation of the minimum capital that banks should maintain to fully absorb their credit, market, and operational risks. In Basel 2.5, the calculation of market risk capital is enhanced by the inclusion of stressed value-at-risk, a new metric designed to account for future periods of extreme market volatility. As this study demonstrates, however, the use of this additional risk estimator often leads to the unintended consequence of excessive and costly capital charge, especially when the stressed period is overshadowed by more recent but less turbulent market events.

    First Page:

    1

    Last Page:

    12

    Total Pages:

    12