ERM frameworks [15]

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Bullet points include: In practice, to mitigate model risk: Regulators/supervisors have applied an otherwise arbitrary multiplier (3). 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 on a mark-to-market or an amortised cost basis?

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