ABN Amro’s market risk drops as VAR falls 53%

Total market RWAs down 4% quarter on quarter

ABN Amro’s value-at-risk more than halved in the third quarter of the year, as the volatile scenarios from the Covid-19 aftermath fell out of the bank’s historical lookback period.

The bank reported a VAR measure of €141 million ($162 million) at end-September, down from €300 million at end-June and €352 million at end-March.

 

 

ABN Amro uses a 300-day window to calculate its VAR, which ended on September 30.

The drop in VAR was offset partially by an increase in the stressed VAR measure, which rose 9% to €935 million quarter on quarter. Total market risk-weighted assets stood at €1.86 billion, down 4% over the second quarter.

What is it?

Value-at-risk measures the potential loss due to adverse market movements over a defined time horizon to a specified confidence level.

Why it matters

The coronavirus-induced market panic led to unprecedented market moves in the second quarter of last year, which was then reflected in the observation windows banks use to set their VAR and stressed VAR measures.

While the latter will stick around for a long time, potentially skewing banks’ historical simulations for years to come, the former is starting to fall off their internal models.

For some dealers, like ABN Amro, this will happen naturally as their historical lookback period comes to an end after a certain number of days. For others, like Barclays, it will be driven by a management decision. Either way, a lower VAR measure will lead to lower VAR-based charges and smaller market risk capital requirements.

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