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March 22, 2018

BCBS launched a consultation on revisions to the minimum capital requirements for market risk. Comment period on the consultation ends on June 20, 2018. BCBS also published the second set of frequently asked questions (FAQs) on the revised market risk standard, combined with those published in an earlier set of FAQs. The questions and answers address clarifications of the standardized approach, the internal models approach, and the scope of application of the standard.

This proposal follows the decision by the Group of Governors and Heads of Supervision, the oversight body of BCBS, to extend the implementation date of the market risk standard to January 01, 2022; this extension is intended to give banks additional time to develop systems infrastructure and to give BCBS the time to address certain aspects of the framework. The proposed changes include the following:

  • 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

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. 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. 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.

 

Related Links

Comment Due Date: June 20, 2018

Keywords: International, Banking, Basel III, Market Risk, Capital Requirements, Standardized Approach, FAQ, BCBS

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