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Risk or Regulatory Capital? Bringing distributions back in the foreground

Dominique Guegan (dominique.guegan@univ-paris1.fr) and Bertrand Hassani (bertrand.hassani@cnce.caisse-epargne.fr)
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Dominique Guegan: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique
Bertrand Hassani: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: This paper discusses the regulatory requirement (Basel Committee, ECB-SSM and EBA) to measure financial institutions' major risks, for instance Market, Credit and Operational, regarding the choice of the risk measures, the choice of the distributions used to model them and the level of confidence. We highlight and illustrate the paradoxes and the issues observed implementing an approach over another and the inconsistencies between the methodologies suggested and the goal to achieve. This paper make some recommendations to the supervisor and proposes alternative procedures to measure the risks.

Keywords: risk measures; sub-additivity; level of confidence; extreme value distributions; financial regulation (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01169268
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Published in 2015

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