ABSTRACT
The CAD utilizes a standardized measurement framework to prescribe minimum initial capital requirements to cover the market risks faced by both credit institutions1(henceforth banks) and investment (securities) firms.2 This followed agreement on earlier proposals attempting to establish a common approach to defining capital and assessing capital adequacy for banks, and the establishment of a minimum capital standard to cover the credit risks faced by banks.3 The Commission's final proposals for handling the market risks faced by banks and investment firms, in the shape of the CAD (EC, 1993a),4 were eventually adopted by member states of the European Union in March 1993, for implementation by 1 January 1996.
