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Monday 13 October 2008

RBS and the missing £45 billion

So NatWest is now owned by the government. How does a bank with shareholders equity of £61 billion come to have a market cap of only £16 billion? How many unsettleable trades are there?

What about Basel II, VaR etc? As their interim report (June 2008) says:

• Historical data may not provide the best estimate of the joint distribution of risk factor changes in the future and may fail to capture the risk of possible extreme adverse market movements which have not occurred in the historical window used in the calculations.

• VaR using a one-day time horizon does not fully capture the market risk of positions that cannot be liquidated or hedged within one day.

• VaR using a 95% confidence level does not reflect the extent of potential losses beyond that percentile.

I couldn’t have put it better myself.

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