FED published the final supporting statement for the market risk capital rule. The statement highlights that FED has revised and extended for three years FR 4201, which is the collection of information associated with the market risk capital rule. The market risk rule, which requires banking organizations to hold capital to cover their exposure to market risk, is an important component of the regulatory capital framework of the FED, under the 12 CFR 217 or Regulation Q. The respondents for this collection of information are bank holding companies, savings and loan holding companies, intermediate holding companies, and state member banks that meet certain risk thresholds. No required reporting forms are associated with this information collection.
FED is revising the FR 4201 (OMB No. 7100-0314) to include certain prior approvals that respondent banking organizations must obtain under the market risk rule. The relevant reporting, recordkeeping, and disclosure requirements can be found in sections 217.203 through 217.210 and section 217.212 of 12 CFR 217. On April 09, 2019, FED had published an initial notice in the Federal Register requesting public comment for 60 days on the extension, with revision, of FR 4201. The comment period for this notice had expired on June 10, 2019. One public comment was received but it was outside the scope of the review of FED under the Paperwork Reduction Act. Post that, FED has published a final notice in the Federal Register on August 02, 2019.
The market risk rule applies to any banking organization with aggregate trading assets and trading liabilities equal to 10% or more of quarter-end total assets or USD 1 billion or more. FED may exclude a banking organization that meets these thresholds if FED determines that the exclusion is appropriate based on the level of market risk of the banking organization and is consistent with safe and sound banking practices. FED may further apply the market risk rule to any other banking organization if FED deems it necessary or appropriate because of the level of market risk of the banking organization or to ensure safe and sound banking practices. The market risk rule 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
Keywords: Americas, US, Banking, FR 4201, Regulatory Capital, Regulation Q, Market Risk, Internal Model, FED
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