Featured Product

    EBA Consults on Calculation of Own Funds Requirements for Market Risk

    January 13, 2020

    EBA is consulting on the draft regulatory technical standards for calculation of the own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework. These own funds requirements are for the non-trading book positions that are subject to foreign-exchange risk or commodity risk. The consultation period ends on April 10, 2020. EBA is mandated to develop these standards in accordance with Article 325(9) of the revised Capital Requirements Regulation (CRR2).

    The proposed regulatory standards specify the value of non-trading book positions that institutions should use when computing the own funds requirements for market risk for those positions. In this respect, the standards require that institutions should use either the last available accounting value or the last available fair value for positions attracting foreign-exchange risk. In addition, institutions are not requested to perform a daily re-valuation of non-trading book positions attracting foreign-exchange risk. However, they are required to reflect on a daily basis the changes in the foreign-exchange component. For positions attracting commodity risk, a daily fair-valuation should be performed.

    Additionally, the proposed standards lay down prudential treatment for the calculation of the own funds requirements for market risk of non-monetary items held at historical cost that may be impaired due to changes in the foreign-exchange rate. In this respect, the standards identify a specific methodology that institutions should use when capitalizing the foreign-exchange risk stemming from those items under the standardized approach. Furthermore, the proposed standards require institutions to directly model the risk of impairment due to changes in the relevant exchange rate in the case of an internal model approach being used. 

    Finally, the standards specify an ad-hoc treatment with respect to the calculation of the actual and hypothetical changes associated to non-trading book positions for the purpose of the back-testing and the profit and loss attribution requirements. This is to address the issue of jumps in the value of the portfolio that may lead to over-shootings in the back-testing that are not due to changes in the foreign-exchange risk component of the price.

     

    Related Links

    Comment Due Date: April 10, 2020

    Keywords: Europe, EU, Banking, FRTB, Own Funds Requirement, CRR2, Non Trading Book Positions, Market Risk, Basel III, Internal Models, Standardized Approach, Regulatory Technical Standards, Foreign Exchange Risk, Commodity Risk, EBA

    Featured Experts
    Related Articles
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    News

    US Agencies Propose Changes to Call Reports and Instructions

    Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.

    July 22, 2021 WebPage Regulatory News
    News

    PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker

    The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Examines Asset Encumbrance in Banking Sector

    The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Publishes Methodological Guide to Mystery Shopping

    The European Banking Authority (EBA) published a methodological guide to mystery shopping.

    July 21, 2021 WebPage Regulatory News
    News

    APRA Issues Update on Capital Reform Policy Settings for Banks

    The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.

    July 21, 2021 WebPage Regulatory News
    News

    CPMI-IOSCO Assess Continuity Planning of Market Infrastructures

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.

    July 21, 2021 WebPage Regulatory News
    News

    BoE Announces Changes to Validation Rules for Form BTL

    The Bank of England (BoE) published questions and answers (Q&A) on OSCA to BEEDS migration for statistical reporting as well a presentation from the project overview session held with statistical reporters.

    July 20, 2021 WebPage Regulatory News
    News

    BCBS Proposes Changes to Process for Reviewing G-SIB Methodology

    The Basel Committee on Banking Supervision (BCBS) is consulting on a technical amendment to the Basel Framework to reflect a new process reviewing the global systemically important bank (G-SIB) assessment methodology.

    July 20, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7281