
120 Operational Risk Control
䊏 Marking-to-market, and
䊏 Book value, the accruals method.
Using both approaches indiscriminately can lead to trouble. The results of the two
methods, however, can be compared for benchmarking. If capitalisation is, say, $30
billion, and book value stands at $50 billion, then the regulators will ask for an
explanation of the reasons for the difference.
There is an exception to the statement made in the preceding paragraph, and it has
to do with the valuation of derivative financial instruments in the bank’s trading
book. While the majority of derivatives tend to be short- to medium-term, some are
long-term. Interest rate ...