Template-type: ReDIF-Paper 1.0
Author-Name: Juan-Ángel Jiménez-Martín
Author-Email: juanangel@ccee.ucm.es
Author-Homepage: https://www.ucm.es/fundamentos-analisis-economico2/jajm
Author-Person: pji27 
Author-Workplace-Name: Departamento de Economía Cuantitativa (Department of Quantitative Economics), Facultad de Ciencias Económicas y Empresariales 
	(Faculty of Economics and Business), Universidad Complutense de Madrid
Author-Workplace-Homepage: https://www.ucm.es/fundamentos-analisis-economico2
Author-Workplace-Homepage: https://www.ucm.es/icae
Author-Name: Michael McAleer
Author-Workplace-Name: Econometric Institute Erasmus University Rotterdam and Department of Applied Economics
	National Chung Hsing University Taiwan
Author-Name: Teodosio Pérez-Amaral
Author-Workplace-Name: Dpto. de Fundamentos de Análisis Económico II, Universidad Complutense
Author-Workplace-Homepage: https://www.ucm.es/fundamentos-analisis-economico2
Author-Workplace-Homepage: https://www.ucm.es/icae
Title: Has the Basel II Accord Encouraged Risk Management During the 2008-09 Financial Crisis?
Abstract: The Basel II Accord requires that banks and other Authorized Deposit-taking Institutions
	(ADIs) communicate their daily risk forecasts to the appropriate monetary authorities at 
	the beginning of each trading day, using one or more risk models to measure Value-at-Risk 
	(VaR). The risk estimates of these models are used to determine capital requirements and 
	associated capital costs of ADIs, depending in part on the number of previous violations, 
	whereby realised losses exceed the estimated VaR. In this paper we define risk management in 
	terms of choosing sensibly from a variety of risk models, discuss the selection of optimal 
	risk models, consider combining alternative risk models, discuss the choice between a conservative 
	and aggressive risk management strategy, and evaluate the effects of the Basel II Accord on risk 
	management. We also examine how risk management strategies performed during the 2008-09 financial 
	crisis, evaluate how the financial crisis affected risk management practices, forecasting VaR and 
	daily capital charges, and discuss alternative policy recommendations, especially in light of the 
	financial crisis. These issues are illustrated using Standard and Poor’s 500 Index, with an emphasis 
	on how risk management practices were monitored and encouraged by the Basel II Accord regulations 
	during the financial crisis.
Classification-JEL: G32, G11, G17, C53, C22.
Keywords: Value-at-Risk (VaR), Daily capital charges, Exogenous and endogenous violations, Violation penalties, 
	Optimizing strategy, Risk forecasts, Aggressive or conservative risk management strategies, Basel II 
	Accord, Financial crisis.
Length: 29 pages
Creation-Date: 2009
Number: 2009-18
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae0918.txt
File-URL: https://eprints.ucm.es/id/eprint/8849/1/0918.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:0918