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    BCB Proposes Changes to Credit and Market Risk Rules Under Basel III

    December 12, 2020

    BCB published two consultation papers setting out certain credit risk and market risk requirements under the Basel III framework. One consultation proposes a resolution that amends the procedures for calculation of capital requirements for the standardized approach to credit risk exposures. The consultation period ends on February 23, 2021 and the associated final BCB resolution is expected to take effect on January 01, 2022. The other consultation relates to changes to certain aspects of the regulatory framework for market risk, based on the Fundamental Review of the Trading Book (FRTB) under Basel III. The consultation period for this proposal ends on February 09, 2021 and the associated regulatory changes are expected to come into force on January 01, 2022.

    The new framework for the standardized approach for credit risk is expected to be more robust and risk-sensitive. The proposal increases the granularity of the weights applicable to exposures, bringing refinements in the differentiation in credit risk. The consultation introduces BCBS recommendations related to the Basel III framework, as published in December 2017. The proposal is addressed to financial institutions classified in Segments 1 (S1) to 4 (S4). All institutions included in these segments currently opt for the standardized approach for credit risk. This new resolution will replace the BCB Circular No. 3,644 dated March 04, 2013, upon finalization. 

    Additionally, the consultation on market risk framework represents the first phase—out of the four expected phases—of the process of reviewing the prudential standard for determining the capital requirements related to market risk. The first phase consultation covers requirements for the risk management process, including improvements in governance and the identification of financial instruments classified in the trading portfolio. According to the proposals in the consultation, the requirements in the first phase will come into force on January 01, 2022, through amendments to the Resolution 4,557 of February 23, 2017 and through the publication of a new rule that will replace the Circular No. 3,354 dated June 27, 2007. 

     

    Related Links (in Portuguese)

    Comment Due Date: February 23, 2021/February 09, 2021

    Keywords: Americas, Brazil, Banking, Basel, Credit Risk, Market Risk, Standardized Approach, FRTB, Regulatory Capital, Financial Instruments, Trading Book, BCB

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