Online Appendix for: Regulatory Capital and Incentives for Risk Model Choice under Basel 3

Abstract

Motivated by the recent changes made to the regulatory environment that governs how banks calculate minimum capital requirements Liu and Stentoft (2020) seek to answer the question of how regulation affect banks’ choice of risk-management models, whether it incentivizes them to use correctly specified models, and if it results in more stable capital requirements. This Online Appendix contain further details on the regulatory calculations, Appendix A, on how to select optimal thresholds for Extreme Value Theory models, Appendix B, on the back-testing methods used for ES, Appendix C, and some additional results, Appendix D and E.

Keywords: Basel 3, Expected Shortfall Back-testing, Regulatory Capital Requirements

JEL Classification: C14, C22, C53, G32