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IRC comments
Feb 9, 2009
The Basel Committee recently issued a third consultative paper on the Incremental Risk Charge, the capital charge to incorporate credit and migration risk in trading portfolios. We comment here on the new proposal, from both a practical and fundamental perspective. To do so, we begin with a statement of the Committee's goals: some of which have been explicitly stated, some which we can infer from prior documents and some which we would assert should be goals, even if the Committee is not in a position to state them outright. With a set of broad principles defined, we then proceed to question whether the specific proposal achieves the goals, and to make a few modest recommendations as to how they may be better met.
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