US Agencies (FED and OCC) issued response to a public question on increase in the number of backtesting exceptions and the associated capital implications under the market risk capital rule (12 CFR 3, subpart F) in light of the current market conditions. The joint response notes that the agencies took supervisory action in March 2020 and April 2020, giving certain banks the option to apply the multiplication factor that applied as of December 31, 2019, rather than applying a higher multiplier based on the most recent exceptions.
The market risk capital rule requires that a banking organization identify, once each quarter, the number of business days for which the actual daily net trading loss, if any, exceeds the corresponding daily value-at-risk (VaR) based measure exceptions that have occurred over the preceding 250 business days. A banking organization must then apply a multiplication factor that corresponds to the number of exceptions to determine its VaR-based and stressed VaR-based capital requirements for market risk, unless the banking organization’s primary federal banking regulator notifies the banking organization in writing that a different adjustment or another action is appropriate.
Additional time may be required to evaluate the root cause of recent backtesting exceptions, which otherwise could result in a capital requirement for market risk that is not commensurate with the firm’s covered positions. When determining whether a different adjustment to a banking organization’s VaR-based and stressed VaR-based capital requirements for market risk is appropriate, the primary federal banking regulator generally considers whether a regime shift has occurred. During March and April of 2020, consistent with section 204(b)(2) of the market risk capital rule, affected banking organizations were notified that they may apply the multiplication factor that applied as of December 31, 2019, to determine VaR-based capital requirements for market risk and stressed VaR-based capital requirement for market risk through September 30, 2020, as a result of the impact of COVID-19 on financial markets.
Keywords: Americas, US, Banking, COVID-19, Market Risk, Regulatory Capital, Backtesting Exception, Value-at-Risk, Pillar 3, Disclosure, Basel, US Agencies
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APRA announced that it is resuming consultation on the confidentiality of data submitted to APRA by the authorized deposit-taking institutions.
US Agencies (FDIC, FED, and OCC) finalized two rules, which are either identical or substantially similar to the interim final rules in effect and issued earlier this year.
EIOPA is consulting on a supervisory statement on the use of risk mitigation techniques by insurance and reinsurance undertakings.
EC adopted a decision determining, for a limited period of time, that the regulatory framework applicable to central counterparties, or CCPs, in the UK and Northern Ireland is equivalent to the requirements laid down in the European Market Infrastructure Regulation (EMIR or Regulation 648/2012).
ESMA announced that it will recognize three central counterparties (CCPs) established in the UK as third-country CCPs, from January 01, 2021.
PRA published Version 02.04 of the PRA110 liquidity metric monitoring tool (PRA110 LMM tool).
BoE and FCA are supporting and encouraging liquidity providers in the sterling swaps market to adopt new quoting conventions for inter-dealer trading based on SONIA, instead of LIBOR, from October 27, 2020.
Deutsche Bundesbank published special schema files for securities holdings statistics (SHS), along with a document on the XML format description.
FSB confirmed the Regulatory Oversight Committee (ROC) of the Global Legal Entity Identifier System (GLEIS) as the International Governance Body for the globally harmonized identifiers used to track over-the-counter (OTC) derivatives transactions, with effect from October 01, 2020.
FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.