The period from 2003 to 2006 was characterized by low volatilities of most market variables.

Prior to the 2007-2009 financial crisis, the relatively low volatility in the markets led to VaR models generating inappropriately low capital requirements for market risk. Consequently, when the crisis hit and volatilities spiked, actual losses far exceeded the VaR estimates, and banks were severely undercapitalized for the risks they held. To address this procyclicality and ensure sufficient capitalization during stressful periods, Basel II.5 introduced the stressed VaR measure. This regulation requires banks to calculate VaR using historical data from a continuous 12-month period of significant financial stress relevant to the bank's portfolio, ensuring that capital requirements remain appropriately robust even during periods of low current market volatility.