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Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition by Youssef F. Bissada, Jean Dermine

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The market risk amendment

The 8% Cooke ratio was developed in 1988 to cover credit risk. In 1996, the capital regulation was amended to incorporate market risk; that is, the risk resulting from trading bonds, shares, commodities and derivatives. Additional capital is required to cover the potential adverse change in the value of the trading portfolio, with a confidence level of 99%. This adverse change of value is often called value-at-risk (VAR).[2]

[2] Interested readers should consult the document drafted by the Basel Committee in 1996 (updated in 2005): Amendment to the Capital Accord to Incorporate Market Risks, Basel Committee on Banking Supervision.

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