June 28, 2018

BCBS, on March 22, 2018, launched a consultation on revisions to the minimum capital requirements for market risk. The consultation period ended on June 20 and BCBS has published the 42 responses it had received to this consultation.

The proposals aim to address issues that BCBS had identified while monitoring the implementation and impact of the market risk standard that was issued in January 2016. Post this, BCBS had launched a consultation, in June 2017, on a simplified alternative to the standardized approach. The June 2017 consultation proposed a re-calibration of the Basel II standardized approach for banks with less material market risk exposure. The most recent consultation proposed the following changes:

  • Changes to the measurement of the standardized approach to enhance its risk-sensitivity, including changes to foreign exchange risk
  • Re-calibration of standardized approach risk-weights applicable to general interest rate risk, foreign exchange risk, and equity risk
  • Revisions to the assessment process to determine whether a bank's internal risk management models appropriately reflect the risks of individual trading desks
  • Clarifications on the requirements for identification of risk factors that are eligible for internal modeling
  • Clarifications on the scope of exposures that are subject to market risk capital requirements

BCBS plans to finalize any revisions to the market risk standard as soon as possible to allow enough time for national implementation and for banks to develop the necessary infrastructure. The proposed revisions are designed to support smooth implementation of the standard. The implementation date of the market risk standard is January 01, 2022. Improvements to the capital requirements for trading activities are a key component of the Basel Committee's overall efforts to reform global regulatory standards in response to the global financial crisis.


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Keywords: International, Banking, Basel III, Market Risk, Capital Requirements, Standardized Approach, Responses to Consultation, BCBS

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