VAR model under scrutiny as RBS’s breaches spike
Excessive backtesting exceptions lead to increase in capital multiplier
RBS’s trading unit reported five value-at-risk backtesting exceptions in 2018, triggering a capital add-on and bringing the quality and accuracy of its market risk model into question.
The VAR model used by NatWest Markets underestimated actual daily losses once in May, once in November, and three times in December.
Losses in the rates portfolio caused by interest rate and inflation volatility were blamed for the exceptions in May and December, and a re-marking of the sterling inflation curve
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