So everyone "knew" it wasn't doing the job but they (at least in some banks) carried on using it anyway because...have hammer, use hammer. That or they were del

So everyone "knew" it wasn't doing the job but they (at least in some banks) carried on using it anyway because...have hammer, use hammer. That or they were deliberately using it because of its deficiencies that let them take bigger risks than they knew were wise or at least would be allowed under other approaches. The reduction of leverage, cascading down of asset prices is exactly the sort of correlated event that VaR doesn't cover at all and does happen every couple of decades. It isn't really some bizarre outlying event. The moment it matters (almost) all asset prices suddenly correlate. If you use VaR as "the number that runs the bank" (I can't remember where but I'm sure I've heard it referred to as something like that possibly with respect to Lehman) then you are going to get into trouble. The "shock" scenarios approach sounds useful provided the imagination is open to really shocking outcomes.