[R-SIG-Finance] Capital requirements as a cushion against risks, why?

[Joshua Ulrich]

Please don't cross-post: http://quant.stackexchange.com/q/8636/56

It's rude because it fragments information and you waste people's time
if they answer in one forum when the question's already been answered
in another forum.
--
Joshua Ulrich  |  about.me/joshuaulrich
FOSS Trading  |  www.fosstrading.com


On Sat, Aug 3, 2013 at 8:06 AM, Copula Guy <copulaguy at yahoo.de> wrote:
> I am currently programming different VaR models with R and I often read about the Basel framework. There the capital requirements are determinded by a fomula which uses the VaR. Now I am wondering, why a bank needs to hold a certain amount of capital?
>
>
> In general, it says, the minimum capital requirements are used, to
> determine the capital that banks must hold as an insurance against risk.
> E.g. if a Bank has invested in one equity asset, e.g. Microsoft stock (long). If now the stock drops, the bank's asset looses value - so the
> bank has a loss, but it does not have to actually PAY something? Why
> should the bank hold extra money as an insurance against this drop in
> the assets value?
>
> Although this is not directly a question about R programming in finance I was wondering about this, when I did my R project.
>
> Thanks a lot in advance!
>
>
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