FED published the final supporting statement for the market risk capital rule. The statement highlights that FED has revised and extended for three years FR 4201, which is the collection of information associated with the market risk capital rule. The market risk rule, which requires banking organizations to hold capital to cover their exposure to market risk, is an important component of the regulatory capital framework of the FED, under the 12 CFR 217 or Regulation Q. The respondents for this collection of information are bank holding companies, savings and loan holding companies, intermediate holding companies, and state member banks that meet certain risk thresholds. No required reporting forms are associated with this information collection.
FED is revising the FR 4201 (OMB No. 7100-0314) to include certain prior approvals that respondent banking organizations must obtain under the market risk rule. The relevant reporting, recordkeeping, and disclosure requirements can be found in sections 217.203 through 217.210 and section 217.212 of 12 CFR 217. On April 09, 2019, FED had published an initial notice in the Federal Register requesting public comment for 60 days on the extension, with revision, of FR 4201. The comment period for this notice had expired on June 10, 2019. One public comment was received but it was outside the scope of the review of FED under the Paperwork Reduction Act. Post that, FED has published a final notice in the Federal Register on August 02, 2019.
The market risk rule applies to any banking organization with aggregate trading assets and trading liabilities equal to 10% or more of quarter-end total assets or USD 1 billion or more. FED may exclude a banking organization that meets these thresholds if FED determines that the exclusion is appropriate based on the level of market risk of the banking organization and is consistent with safe and sound banking practices. FED may further apply the market risk rule to any other banking organization if FED deems it necessary or appropriate because of the level of market risk of the banking organization or to ensure safe and sound banking practices. The market risk rule requires subject banking organizations to:
- Have clearly defined policies and procedures for determining which trading assets and trading liabilities are trading positions and which trading positions are correlation trading positions
- Have clearly defined trading and hedging strategies for trading positions
- Retain certain financial and statistical information regarding the institution's Board-approved sub-portfolios of its portfolio exposures subject to the market risk rule
- Have a formal disclosure policy that addresses the approach of a banking organization for determining the market risk disclosures
- Make certain public quantitative disclosures
Keywords: Americas, US, Banking, FR 4201, Regulatory Capital, Regulation Q, Market Risk, Internal Model, FED
Previous ArticleESMA Publishes Annual Work Program for 2020
FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).
BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.
FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.
EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.
ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).
HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.
APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.
PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).
US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).
US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.