An IRC model must be based on the assumption of a constant level of risk over the one-year capital horizon⁸⁸.

⁸⁸This assumption is consistent with the capital computations in the IRB Framework. In all cases (loans, derivatives and repos), the IRB Framework defines EAD in a way that reflects a roll-over of existing exposures when they mature.

The combination of the constant level of risk assumption and the one-year capital horizon reflects supervisors' assessment of the appropriate capital needed to support the risk in the trading portfolio. It also reflects the importance to the financial markets of banks having the capital capacity to continue providing liquidity to the financial markets in spite of trading losses. Consistent with a "going concern" view of a bank, this assumption is appropriate because a bank must continue to take risks to support its income-producing activities. For regulatory capital adequacy purposes, it is not appropriate to assume that a bank would reduce its VaR to zero at a short-term horizon in reaction to large trading losses. It also is not appropriate to rely on the prospect that a bank could raise additional Tier 1 capital during stressed market conditions.