Value at Risk vs. Actual Writedowns

Value at Risk "VaR", as defined by the amount at risk at a 99% confidence level over one trading day, means that a VaR of $1 indicates a trading loss of greater than $1 should only occur once every 100 trading days under "normal" market conditions.

Not sure what defines normal, but the past year has been far from normal. Comparing the average VaR of three banks for 2007, as detailed by the Treasury, to the average daily value these banks have written down over the past year (I'm assuming the writedowns are from positions on their books during 2007), one can see just how far off these estimates were.

Citigroup hasn't just lost more than $142 million (their average VaR) on a few occasions. They had $220 million in writedowns on average EACH TRADING DAY.

Source: Treasury