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ERM Frameworks and Responses to risk [30]

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Bullet points include: In practice, to mitigate model risk regulators/supervisors apply arbitrary multiplier (3, rising to 4 if model used is not performing well) Can be viewed as a way of achieving a given overall capital base Now introducing a ‘stressed’ VaR Banks nowadays typically have two main types of business Trading activities (esp. Investment banks) – the trading book Lending activities (esp. Commercial banks) – the banking book Which book/activities should be deemed to be subject to market risk? Should loans be accounted for at mark-to-market or an amortised cost?

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