BIS updates minimum capital requirements for market risk
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BIS updates minimum capital requirements for market risk 15 January 2019Basel Reporter: Jenna Lomax
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The Basel Committee on Banking Supervision (BCBS) has updated its minimum capital requirements for market risk, which replaces an earlier version of the standard as published in January 2016.
The standard has been revised to address issues that BCBS identified in a March 2018 consultative document. BCBS also decided to revise the requirements after it carried out a quantitative impact study in December 2017.
The revised standard comes into effect on 1 January 2022.
As in the January 2016 framework, the core features of the standard include a clearly defined boundary between the trading book and the banking book, and an internal models approach that relies upon the use of expected shortfall models and sets out separate capital requirements for risk factors that are deemed non-modellable.
Other features include a standardised approach that is risk-sensitive and is designed and calibrated to serve as a credible fallback to the internal models approach.
Revisions to the January 2016 framework include a simplified standardised approach for use by banks that have small or non-complex trading portfolios and clarifications on the scope of exposures that are subject to market risk capital requirements, as well as a refined standardised approach treatment of foreign exchange risk and index instruments.
The revisions also include revised standardised approach risk weights, applicable to general interest rate risk, foreign exchange and certain exposures subject to credit spread risk, and revisions to the assessment process to determine whether a bank's internal risk management models appropriately reflect the risks of individual trading desks.
Lastly, it also includes adaptation to the requirements for the identification of risk factors that are eligible for internal modelling.
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