Tariff turbulence piles pressure on banks’ VAR models
Backtesting breaches start to mount, but too early to tell if regulatory intervention needed
As chaos grips markets in the wake of the US government imposing a vast array of import tariffs, banks’ trading risk models are coming under strain. European bank sources, however, say it is too early to tell if regulators need to intervene to stop unwarranted rises in capital requirements.
Banks currently calculate capital requirements for their trading positions using the sum of two value-at-risk measures, which both try to predict the maximum one-day loss a bank’s portfolio could face based on
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