Michael Zerbs, President and COO, Algorithmics, said: "We believe the extension of the incremental charge to cover default, migration, spread and equity risks â including correlations within and across those risks â is an instrumental step in managing the real risks faced by institutions today. The proposed changes are likely to result in a more comprehensive and risk-sensitive capitalization standard for the trading book. Many of our clients already examine such risks for management purposes.â
âThe proposed timeline for the changes will be challenging for some institutions. We expect to help clients meet the upcoming regulatory capital requirements, enabling them to focus their attention on managing their core business. As the requirements evolve we believe our expertise can provide support to organizations looking to implement these changes in a timely manner,â continued Ben De Prisco, Senior Vice President of Research and Financial Engineering.
"The change in scope since the previous version of the guidelines has created much concern in the industry. We found that in some cases the inclusion of additional risk factors implies the inclusion of a significant part of the trading book previously excluded from the incremental risk charge. Our other main concern lies in interpreting the results and implications of the constant level of risk approach,â added Diane Reynolds, Senior Director, Economic Capital.