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    ECB Reduces Capital Required for Market Risk to Address Procyclicality

    April 16, 2020

    ECB announced a temporary reduction in capital requirements for market risk by allowing banks to adjust the supervisory component of these requirements. To alleviate the impact of market volatility due to the COVID-19 crisis, ECB is temporarily reducing the qualitative market risk multiplier, which is a supervisory measure for banks and is used to compensate for the possible underestimation, by banks, of the capital requirements for market risk. The reduction compensates for the recently observed increases in the quantitative multiplier, which can rise when market volatility has been higher than predicted by the internal model of a bank. This decision will be reviewed after six months on the basis of observed volatility.

    Related Link: Press Release

     

    Keywords: Europe, EU, Banking, Market Risk, COVID-19, Qualitative Market Risk Multiplier, Regulatory Capital, CRR, Procyclicality, Basel, Internal Models, ECB

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