Backtesting: Performance of capital requirements for market risk in the BCRA

Delfiner, Miguel and Balzarotti, Verónica and del Canto, Angel (2001): Backtesting: Performance of capital requirements for market risk in the BCRA. Published in:

Abstract

The Central Bank of Argentina (BCRA) introduced in September of 1996 a capital requirement for market risk. This requirement is calculated according to a standarized formulae set by the BCRA, based on a a Value-at-Risk (VaR) of tghe trading portfolio. This document studies the performance of the local methodology for establishing this requirement by means of a backtesting methodology applied to the trading portfolio of all local banks. According to our results, the standarized method established by the BCRA for fixing capital requirements for market risk understates the amount of capital needed to cover the risk.

• Item Type: MPRA Paper
• English Title: Backtesting: Funcionamiento de los requisitos de capital por riesgo de mercado del BCRA
• Language: Spanish
• Keywords: Backtesting; regulatory capital
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

References

Capital Requirements for Latin American Banks in Relation to their Market Risks: The Relevance of the Basle 1996 Amendment to Latin American, por Andrew Powell y Verónica Balzarotti, mayo de 1997, Inter-American Development Bank, working paper series 347.

Amendment to the capital accord to incorporate market risks, Basle Committee on Banking Supervision January 1996.

Techniques for verifying the accuracy of risk measurement models , Paul Kupiec 1995, Financial & Economics Discussion Series, FRB Washington, D.C.

Methods for evaluating Value-at-Risk Estimates, José A. López, presentado en The Federal Reserve System Conference on financial structure and regulation, 1997.