P1.T1 Limits and Limits Standard Policies

[MSO]

Crouhy, Chapter 4 Corporate Governance and Risk Management. Topic: Limits and Limits standard Policies

While going through the notes on page 34:

• Type A (tier 1) limits might include a single overall limit for each asset class and a single overall stress test limit and a cumulative loss from peak limit.
• Type B (tier 2) limits are more general and cover authorized business and concentration limits
• .....
• .....

A consistent limit structure helps a bank to consolidate its approach to risk across many
businesses and activities. If the limits are expressed in a common language of risk, such as
economic capital, then type B limits can be made fungible across business lines. Such transfers
would require the joint approval of the head of a business and the CRO.
​

Can you please provide an example or point to a resource link, please. Visual representation will be great, if possible.

 

[David Harper CFA FRM]

Hi @MSO I just extracted 8 pages (starting with Market Risk Management) from JPMorgan Chase's (NYSE: JPM) 2016 annual report (https://www.jpmorganchase.com/corporate/investor-relations/annual-report-proxy.htm ) because I think they do a nice job of articulating their approach to VaR limits; and they include specific table illustrations.

Here are the pages https://www.dropbox.com/s/5yxiho3cgbfflxx/jpm-extracted-2016-annualreport.pdf?dl=0

 

[MSO]

Thank you, this is really helpful and also gives one more data point to look for such information i.e. from annual reports of financial institutions.