FED extends for three years, with revision, the market risk capital rule (FR 4201; OMB No. 7100-0314). The revisions are applicable immediately. The collections of information provide the statistical data identifying market risk areas on which to focus onsite and offsite examinations. They also allow FED to assess the levels and components of each reporting institution's risk-based capital requirements for market risk and the adequacy of the institution's capital under the market risk rule. Finally, these collections of information ensure capital adequacy of banking organizations according to their level of market risk and assist FED in implementing and validating the market risk framework. No required reporting forms are associated with this information collection.
On April 09, 2019, FED published a proposal on the extension, with revision, of the market risk capital rule. FED had proposed to revise the collections of information associated with the market risk rule to include the prior approvals a banking organization must obtain from FED pursuant to sections 203(c)(1) and 204(a)(2)(vi)(B) of Regulation Q. The comment period for this notice expired on June 10, 2019. One public comment was received but it was outside the scope of review by FED under the Paperwork Reduction Act (PRA). The revisions will be implemented as proposed.
The market risk rule requires a subject banking organization to obtain the approval of the Board prior to using any internal model to calculate its risk-based capital requirements. The market risk rule also 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
Related Link: Federal Register Notice
Effective Date: August 12, 2019
Keywords: Americas, US, Banking, FR 4201, Regulatory Capital, Regulation Q, Market Risk, Internal Model, FED
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