Home -> Law Blog Directory -> Academic Blogs -> Legal Theory Blog

Academic

: Legal Theory Blog

Atik on on Basel II & Extreme Risk

By Lawrence Solum

Jeffery Atik (Loyola Law School Los Angeles) has posted Basel II and Extreme Risk Analysis on SSRN. Here is the abstract:

Basel II mandates the maintenance of bank capital to address three broad categories of risk: credit risk, market risk and operation risk. Basel II methodology assumes that credit risk can be reliably specified with respect to particular asset categories. These projections are based on historical experience, reflected in data sets, which are at times general and at times specific to a particular institution. Basel II may have failed, however, to identify the strong shift in the correlation of defaults that accompanied the financial crisis. Market risk assessment displays similar issues of under-anticipated correlation under extreme conditions. Of the three categories, operational risk is the least tractable. It is a catch-all category, reflecting both internal failures and external events. The character of risk shifts markedly between ?ordinary times? and extreme events.

Full post as published by Legal Theory Blog on September 29, 2010 (boomark / email).