Challenging times for VAR

With the release of three new consultation papers in January, the Basel Committee has come up with its most ambitious plans yet for tackling the challenges presented by the financial crisis. But its proposal to overhaul VAR models is coming in for some fierce criticism. By John Ferry

Few dispute that the Basel II framework has flaws, which have been starkly exposed by the financial crisis. The losses sustained by banks on structured credit exposures far outweighed anything their value-at-risk models suggested they could lose. By building requirements for VAR measures into Basel II, regulators were arguably responsible for institutionalising and giving an official stamp of approval to the use of such imperfect models. Other weaknesses have also become apparent: the lack of