It was also our view that we had possibly reached the bottom of the interest rate cycle. The interpretation of the high frequency data at that time was also complicated by the distortions created by the World Cup.
The VAR-based approach is insufficient for these types of exposures and needs to be supplemented with a default risk charge. In addition, it is critical that banks conduct rigorous Pillar 2 stress testing of their trading book exposures. They must factor in liquidity horizons and reflect these results in their risk limits, economic capital and concentration management strategies.