Basel Committee: Use of 'Backtesting' in Conjunction with the Internal Models Approach to Market Risk Capital Requirements
CA-B.2.1
In January 1996, the
Basel Committee on Banking Supervision issued technical guidance on the "use of 'Backtesting' in Conjunction with the Internal Models Approach to Market Risk Capital Requirements" (see http://www.bis.org/publ/bcbs22.htm).CA-B.2.2
This technical guidance presents a methodology for testing the accuracy of the internal models used by banks to measure market risks.
CA-B.2.3
Backtesting offers the best opportunity for incorporating suitable incentives into the internal models in a consistent manner.
CA-B.2.4
The Agency will rely upon technical guidance for its assessment and review of bank's market risk capital requirements including, but not limited to, the determination of the add-on factor.
