ABSTRACT
Some of the most significant changes in banking law since the global financial crisis involve attempts to make banks more financially stable through more rigorous requirements about how they finance their lending and investment activities. Central to this is the growing use of quantitative models by banks and their regulators to conduct financial war games that simulate how a bank would fare under adverse market conditions. These models – known as “internal models” because they are often proprietary and non-public – attempt to simulate how future states of the market would impact a bank’s financial structure, in particular its ability to absorb losses without interrupting operations.
