market risk capital requirements

Basel Committee Issues Revised Framework for Market Risk Capital Requirements

The Basel Committee on Banking Supervision (BCBS) has issued revised standards for minimum capital requirements for market risk. The purpose of the revised market risk framework is to ensure that the standardised and internal model approaches to market risk deliver credible capital outcomes and promote consistent implementation of the standards across jurisdictions. The revisions focus on three key areas: revised boundary between banking book and trading book, revised internal models approach for market risk and revised standardised approach for market risk. The revised framework also includes a shift from value-at-risk to an expected shortfall measure of risk under stress and incorporation of the risk of market illiquidity.

The revised framework produces market risk risk-weighted assets (RWAs) that account for less than 10% of total RWAs, compared to approximately 6% under the current framework. The revised market risk standard would result in a medium (weighted mean) increase of approximately 22% (40%) in total market risk capital requirements as against the current market risk framework.

The revised market risk framework comes into effect on 1 January 2019. A detailed explanatory note of the new standards is available here.

Fed Final Market Risk Capital Rule

On June 7, pursuant to Section 939A of the Dodd-Frank Act, the Fed released a final rule revising its market risk capital requirements to incorporate certain changes the Basel Committee on Banking Supervision made to its international capital standards for market risk between 2005 and 2010. The final rule is to be issued jointly with the FDIC and OCC, which are expected to adopt the rule next week. The final rule will be effective on January 1, 2013. Fed Memo. Fed Final Rule.