Moreover, tail risks are intertwined with the severe liquidity shortages that occur in systemic crises. Hence, almost by definition, tail risks are difficult to model and measure. The mandatory separation of the riskiest trading activities from deposit banking is a key step for limiting the impact of these risks. Robust capital requirements which do not heavily rely on models are another.
Furthermore, limits on risk concentrations and counterparty exposures can also be strengthened. Our group acknowledged the important work of the Basel Committee on Banking Supervision in reviewing the trading book capital requirements. We recommended that the Commission carry out an evaluation of whether the resultant amendments would be sufficient at EU level.