Methods for Evaluating Value-at-Risk Estimates

In August 1996, the U.S. bank regulatory agenciesadopted the market risk amendment (MRA) to the 1988Basle Capital Accord. The MRA, which became effectivein January 1998, requires that commercial banks withsignificant trading activities set aside capital to cover themarket risk exposure in their trading accounts. (For furtherdetails on the market risk amendment, see Federal Register[1996].) The market risk capital requirements are to bebased on the value-at-risk (VaR) estimates generated by thebanks’ own risk management models.[...]