Evaluating the Basle Guidelines for Backtesting Banks' Internal Risk Management Models
评估巴塞尔协议允许银行使用内部模型计算资本要求的回溯测试程序，发现当前框架下银行倾向于低估市场风险，需要更严格的惩罚机制来激励银行使用正确模型。
The 1996 Amendment to the Baste capital accord to incorporate market risks constitutes a breakthrough in the determination of capital requirements. Rather than dictating these requirements through a uniform supervisory approach, banks are allowed to use their own, internal models for computing the capital required. In order to mitigate moral hazard problems and stimulate banks to use adequate internal models, the models must be subjected to a backtesting procedure. If a model produces too many incorrect predictions, increased capital requirements result. This paper provides an evaluation of the current internal models approach in conjunction with the proposed backtesting procedure. In particular, using a stylized representation of the present supervisory framework, we investigate whether banks are provided with the right incentives to come up with the correct internal model. We find that under the current regulatory framework banks are prone to under-reporting their true market risk. A much stricter penalty scheme is required in order to align banks' incentives with those of the supervisor. We check the sensitivity of our results to changes in the length of the planning horizon, portfolio risk, time preferences, risk attitudes, and the distribution of financial returns.