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    BCBS Finalizes Market Risk Capital Framework and Work Program for 2019

    January 14, 2019

    BCBS published the final framework for market risk capital requirements and its work program for 2019. Also published was an explanatory note to provide a non-technical description of the overall market risk framework, the changes that have been incorporated into in this version of the framework, and impact of the framework. The note sets out a number of worked examples to illustrate the application of the standardized approach of the framework. This revised standard comes into effect on January 01, 2022.

    The final market risk standard incorporates changes that were proposed in a March 2018 consultative document and has been informed by a quantitative impact based on data as of the end of December 2017. The revisions to the market risk framework endorsed by the Group of Central Bank Governors and Heads of Supervision (GHOS) enhance its design and calibration by:

    • Introducing a simplified standardized approach for banks with small or non-complex trading portfolios
    • Clarifying the scope of exposures that are subject to market risk capital requirements
    • Enhancing the risk sensitivity of the standardized approach by revising the treatment of foreign exchange risk, index instruments, and options
    • Revising the standardized approach risk-weights applicable to general interest rate risk, foreign exchange risk, and selected credit spread risk exposures
    • Revamping the assessment process to determine whether a bank's internal risk management models appropriately reflect the risks of individual trading desks (the so-called profit and loss attribution test)
    • Revising the requirements for identifying risk factors that are eligible for internal modeling and the capital requirement applicable to risk factors that are deemed "non-modelable"

    The GHOS also endorsed the Basel Committee's strategic priorities and work program for 2019. The work program for 2019 focuses on four key themes:

    • Finalizing ongoing policy reforms and pursuing targeted new policy initiatives, where needed
    • Evaluating and monitoring the impact of post-crisis reforms and assessing emerging risks
    • Promoting strong supervision
    • Ensuring full, timely, and consistent implementation of the post-crisis reforms of the Basel Committee 

     

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    Effective Date: January 01, 2022

    Keywords: International, Banking, Market Risk, Basel III, Standardized Approach, FRTB, Capital Framework, Work Program, BCBS

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