BCBS proposed a simplified alternative to the standardized approach to market risk capital requirements. In January 2016, BCBS had issued the global standard for minimum capital requirements for market risk, which includes a standardized approach for use by banks other than those that are large and internationally active. This consultative document sets out a simplified alternative to the sensitivities-based method (SbM), which is the primary component of the standardized approach. Comments are due by September 27, 2017.
This document proposes a reduced sensitivities-based method that would remove capital requirements for vega and curvature risks; simplify the basis risk calculation; and reduce risk factor granularity and the correlation scenarios to be applied in the associated calculations. As proposed, for banks that adopt the reduced SbM, the standardized approach market risk capital requirement would be the sum of three components:
The risk charges under the reduced SbM (as proposed in the consultative document)
The default risk charge
The residual risk add-on
The default risk charge and the residual risk add-on are to be calculated as specified in the January 2016 standard. Use of the proposed reduced SbM would be subject to supervisory approval and oversight; it would be available only to banks that meet certain qualitative and quantitative criteria. The Committee is also seeking feedback on whether retaining a recalibrated version of the Basel II standardized approach to market risk would better serve the purpose of including a simplified method for market risk capital requirements in the Basel framework.
Comment Due Date: September 27, 2017
Keywords: International, BCBS, Standardized Approach, SbM, Capital Requirements, Banking, Market Risk, R-SbM
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