Therefore, as trading in those credit instruments grew, new portfolio models were developed to take on board the interaction between Credit risk and Market risk. Traditionally, regulation has distinguished between Credit risk and Market risk, and has treated both risks independently. The Basel II Accord requires banks to keep capital for Credit risk for banking book exposures and Market risk for trading book exposures.
First, the output of the Systemic Risk Council will make a major contribution to financial stability in the EU. In accordance with the de Larosière report, it will identify and assess risks and vulnerabilities in the EU financial system, issue risk warnings and adopt related policy recommendations. This will substantially improve the present arrangements for risk assessment at EU level.