Featured Product

    EBA Finalizes Standards on Alternative SA for Market Risk

    October 25, 2021

    The European Banking Authority (EBA) published the final draft regulatory technical standards on gross jump-to-default amounts and on residual risk add-on under the Capital Requirements Regulation or CRR. One set of regulatory standards specifies how gross jump-to-default amounts are to be determined for calculating the default risk charge for non-securitization instruments while the other set specifies how to identify instruments exposed to residual risks for the residual risk add-on. These standards provide technical specifications for the implementation of the aforementioned two elements of the alternative standardized approach for market risk. The draft regulatory standards are a part of the phase 3 deliverables of the EBA roadmap for the new market and counterparty credit risk approaches.

    Institutions using the alternative standardized approach for market risk are required to compute three separate own funds requirements for market risk—namely, the sensitivities-based method (SbM) requirements, the residual risk add-on, and the default risk charge. To determine the default risk charge under the alternative standardized approach for market risk under the CRR, the gross jump-to-default amount of exposures are to be calculated. The final draft regulatory technical standards on gross jump-to-default amounts specify how gross jump-to-default amounts are to be determined for institutions’ exposures in the trading book under the alternative standardized approach for market risk, in scope of the default risk charge for non-securitizations. These standards are intended to address the following three mandates set out in CRR:

    • How the components P&Llong, P&Lshort, Adjustmentlong, and Adjustmentshort are to be determined to calculate gross jump-to-default amounts of exposures to debt and equity instruments with the formulae in Article 325w(1), (2), and (5) of CRR
    • Which alternative methodologies institutions are to use for estimating gross jump-to-default amounts of exposures referred to in Article 325w(7) of CRR
    • How to determine the notional amount of instruments other than the ones referred to in Article 325w(4) of CRR

    The regulatory technical standards on residual risk add-on clarify the scope of residual risk add-on instruments for which the own funds capital requirements for residual risks should be determined. The standards specify a non-exhaustive list of instruments bearing residual risks and a list of risks that do not constitute residual risks. The standards also clarify that longevity risk, weather, natural disasters, and future realized volatility should all be considered as exotic underlyings. The residual risk add-on is intended to provide a simple and conservative capital treatment for any other risks not covered by the sensitivities-based method or the default risk charge. Therefore, instruments exposed to residual risks—that is, instruments referencing an exotic underlying or instruments bearing other residual risks—are subject to the residual risk add-on treatment. The residual risk add-on amounts to 1% or 0.1% of the gross notional amount of the instrument, depending on whether the instrument is an instrument referencing an exotic underlying or an instrument bearing other residual risks, respectively.

     

    Related Links

    Keywords: International, Asia Pacific, Banking, Securities, Central Banks, Asian Development Bank, Green Bond Fund, ESG, Sustainable Finance, BIS

    Featured Experts
    Related Articles
    News

    EBA Publishes Final Regulatory Standards on STS Securitizations

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.

    September 20, 2022 WebPage Regulatory News
    News

    ECB Further Reviews Costs and Benefits Associated with IReF

    The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.

    September 15, 2022 WebPage Regulatory News
    News

    EBA Publishes Funding Plans Report, Receives EMAS Certification

    The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).

    September 15, 2022 WebPage Regulatory News
    News

    MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures

    The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.

    September 15, 2022 WebPage Regulatory News
    News

    BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules

    The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.

    September 15, 2022 WebPage Regulatory News
    News

    IOSCO Welcomes Work on Sustainability-Related Corporate Reporting

    The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)

    September 15, 2022 WebPage Regulatory News
    News

    BoE Allows One-Day Delay in Statistical Data Submissions by Banks

    The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.

    September 14, 2022 WebPage Regulatory News
    News

    ACPR Amends Reporting Module Timelines Under EBA Framework 3.2

    The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.

    September 14, 2022 WebPage Regulatory News
    News

    ECB Paper Discusses Disclosure of Climate Risks by Credit Agencies

    The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)

    September 13, 2022 WebPage Regulatory News
    News

    APRA to Modernize Prudential Architecture, Reduces Liquidity Facility

    The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.

    September 12, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8514