In the last few years, regulating agencies of many countries, following recommendations of the Basel Committee on Banking Supervision, have compelled financial institutions to maintain minimum capital requirements to cover market and credit risks. The capital charge to cover market risk is a...

In the last years, regulating agencies of many countries in the world have adopted VaR-based risk regulation to control market risk of financial institutions. This paper investigates the consequences of such kind of regulation to social welfare and soundness of financial institutions through an...