Risk or Regulatory Capital? Bringing distributions back in the foreground

Dominique Guegan (1) , Bertrand Hassani (1)

1 CES - Centre d'économie de la Sorbonne

This paper discusses the regulatory requirement (Basel Committee, ECB-SSM and EBA) to measure financial institutions' major risks, for instance Market, Credit and Operational, regarding the choice of the risk measures, the choice of the distributions used to model them and the level of confidence. We highlight and illustrate the paradoxes and the issues observed implementing an approach over another and the inconsistencies between the methodologies suggested and the goal to achieve. This paper make some recommendations to the supervisor and proposes alternative procedures to measure the risks.

Mots clés: risk measures; sub-additivity; level of confidence; extreme value distributions; financial regulation

Domaines: Economies et finances; Gestion et management; Méthodes et statistiques; Probabilités [math.PR]

Dominique Guegan, Bertrand Hassani. Risk or Regulatory Capital? Bringing distributions back in the foreground. 2015. ⟨halshs-01169268⟩