Algorithmics Comments on Incremental Risk in Basel II and Implications for Future Capital Management

Algorithmics has submitted a comprehensive response to the Basel Committee on Banking Supervision, supplying an analytical review of the Guidelines for Computing Capital for Incremental Risk in the Trading Book proposed in July 2008. While commending the Committee for its prompt action in response to the credit crisis, as it stood in July, Algorithmics expressed some concerns whether the implementation of the proposed rules would be consistent with the Committee’s stated objectives in a number of areas. Substantiating its concerns with several detailed technical documents, Algorithmics suggested further consideration of those rules. Michael Zerbs, President and COO, Algorithmics, said: “We believe the extension of the incremental charge to cover default, migration, spread and equity risks – including correlations within and across those risks – is an instrumental step in managing the real risks faced by institutions today. The proposed changes are likely to result in a more comprehensive and risk-sensitive capitalisation standard for the trading book. Many of our clients already examine such risks for management purposes.”

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