US banks’ internal stress tests vary
Choice of stress period affects market risk capital requirements
The stress periods used by the largest US banks to determine a portion of their market risk capital requirements vary markedly and change frequently.
Stressed value-at-risk-based capital requirements are calculated by running a bank’s trading portfolio through a regulatory VAR model with inputs calibrated to historical data from a 12-month period of financial stress.
Market risk capital rules state that a firm may select a stress period that is is appropriate to the “composition and
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