EC is consulting on a delegated regulation amending the Capital Requirements Regulation (CRR) with regard to the alternative standardized approach for market risk. The delegated act complements certain elements of the sensitivities-based method to make the corresponding reporting requirement, contained in the CRR, operational; it clarifies how institutions need to carry out the calculations, the results of which need to be reported. The objective of the consultation is to obtain views on certain technical aspects of the proposed delegated act by November 11, 2019. The adoption of this proposal by EC is envisaged for June 2020.
The alternative standardized approach has three components: the sensitivities-based method, the default risk charge, and the residual risk add-on. Each of these three components covers specific types of risks, with the overall own funds requirement for market risk under the alternative standardized approach being the sum of the individual risk charges for all three elements. The introduction of an own funds requirement for market risk based on the new market risk framework requires the EC proposal to amend the CRR. The draft delegated regulation presents the intentions of the "Directorate-General for Financial stability, financial services and capital markets union" regarding incorporation of the revisions in CRR, particularly:
- Consistent shocks to similar risk factors and revisions to the aggregation formula for the calculation of curvature risk
- Possibility to subject instruments without optionality to curvature risk
- Three approaches for the calculation of own funds requirements for positions in collective investment undertakings and conditions for their use
- Possibility to treat positions in a collective investment undertaking that tracks an index as a direct position in that index
- An additional method to determine the own funds requirement for delta and curvature risks for foreign exchange risk factors, the so-called base currency approach
Earlier, as part of the banking package in May 2019, CRR had introduced a new reporting requirement based on the new market risk framework. As the changes to the standardized approach for market risk agreed in the second Basel review could not be incorporated in the banking package before its adoption, the co-legislators empowered EC to introduce them by means of a delegated act. The delegated act will contain the necessary elements to make the reporting requirement operational. The adoption by EC of this delegated act will represent a part of the implementation of the new market risk framework.
Comment Due Date: November 11, 2019
Keywords: Europe, EU, Banking, CRR, Market Risk, Standardized Approach, Commission Delegated Regulation, FRTB, Basel III, Banking Package, EC
Previous ArticleOCC Amends Rule on Other Real Estate Owned Activities for Banks
HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.
BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.
ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy.
ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic.
EBA published a report that examines the interlinkages between recovery and resolution planning under the Bank Recovery and Resolution Directive (BRRD).
SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package.
EIOPA published its risk dashboard based on Solvency II data from the fourth quarter of 2019.
MNB published a statement on loan payments post the announced moratorium, in addition to a set of new questions and answers (Q&A) on supervisory measures and requirements announced amid COVID-19 pandemic.
EBA updated the Single Rulebook question and answer (Q&A) tool for banks.
US Agencies (FDIC, FED, and OCC) published an interim final rule that temporarily revises the supplementary leverage ratio calculation for depository institutions.