Basel, VaR, and Me

Haven´t you noticed how bank regulators have of late taken to badmouthing VaR and fingerpointing it for its role in the crisis? I know, I know, this typically goes uncovered by the media. But for all of us VaR junkies (and I have become one since fully realizing VaR´s responsibility for the catastrophe), it is quite something to witness the BIS, the Basel Committee, the UK FSA, and others basically shout from their rooftops that VaR is and always was crap that would eventually and inevitably lead to perilously lethal toxic leverage in the banking industry.

I know, I know. The mandarins have not gone so far as erasing VaR from the land, but they seem like they would really like to. All those tweakings to Basel´s calculation of the market risk capital charge (a public recognition that the prior system, aka just VaR, was rotten to the core) aim at achieving a VaR-lite regime. It is obvious to me that the add-ons may not solve much, but that´s another issue. What truly matters is the regulatory message: we messed up by embracing VaR all these years, can we make amends?

This must be taxing times for hard-core VaRistas in the risk management and academic worlds. Even their hitherto public-sector allies are jumping ship. What must be even worse for some (like those who lambast my musings with ad hominen attacks, never by addressing the issues) is that quite important regulators now quote from my Lecturing Birds On Flying when looking for supporting arguments in their current "VaR failed" campaign. Some very powerful folks in Basel seem to be saying that that Triana guy actually got something quite right!

Any VaRista out there feeling a bit queasy after reading all this is welcomed to retaliate by posting on the web yet another critique of my book on the grounds that "the style is convoluted" or "the author is unbearably repetitive". Anything but countering the book´s arguments. Especially after even the regulators don´t want to be seen in VaR´s company.