Basel Committee on Banking Supervision announces adjustments to the Basel II market risk framework


June 18, 2010: The Basel Committee on Banking Supervision has agreed on certain adjustments to the document Revisions to the Basel II market risk framework (the market risk revisions). This revised market risk framework was released in July 2009 and covered the following areas:

1. Banks using internal models in the trading book must calculate a stressed value-at-risk based on historical data from a continuous 12-month period of significant financial stress;

2. Banks using internal specific risk models in the trading book must calculate an incremental risk capital charge (IRC) for credit sensitive positions which captures default and migration risk at a longer liquidity horizon;

3. Securitisation positions held in the trading book will be subject to the Basel II securitisation charges, similar to securitisation positions held in the banking book; and



4. So-called correlation trading books are exempted from the full treatment for securitisation positions, qualifying either for a revised standardised charge or a capital charge based on a comprehensive risk measure.

The adjustments announced today relate to elements 3 and 4 above:

a) The Committee has re-confirmed the capital charge for non-correlation trading securitisation positions, i.e. to base it on the sum of the capital charges for net long and net short positions. However, for a transition period of two years following the implementation of the market risk revisions, the charges may be based on the larger of the capital charges for net long and net short positions. During this period of transition, there is a need to ensure that there is not undue recognition of hedging between economically unrelated positions.

b) In line with its announcement in paragraph 9 of the July 2009 market risk revisions that it would evaluate a floor for the correlation trading securitisation positions, the Committee agreed to set this floor at 8% of the standardised measurement method.

Furthermore, the Committee agreed to a coordinated start-date of not later than 31 December 2011 for all elements of the July 2009 trading book package. This consists of the Revisions to the Basel II market risk framework and the Guidelines for computing capital for incremental risk in the trading book. This coordinated start date will provide supervisors with additional flexibility that will permit more robust implementation and review of changes to market risk models. To facilitate consistency, the Committee also agreed to permit the flexibility to implement the Revisions to Pillar 1 of the document Enhancements to the Basel II framework (released in July 2009) at the same time as the trading book reforms.

As a result of these revisions, market risk capital requirements will increase by an estimated average of three to four times for large internationally active banks.

"The Power Panel" at Banknet's 6th Annual CTO-CXO Summit will deliberate on the high priority areas of Risk Management, Basel II, Cyber Frauds, Security and CRM. Session will have special focus on integrating Technology with Compliance, Security & Efficiency in Banks. ... Read More

Join Banknet Group Connect with Banknet

Follow Banknet Banknet News Feeds


Report on Bank funding and liquidity management ... Read here
Basel II and Revisions to the Capital Requirements Directive ... Read here
Strengthening cross-border bank resolution frameworks... Read here
Principles for enhancing corporate governance in banks... Read here
Initiative to promote international financial standards... Read here
consultative paper on Microfinance activities... Read here
Central Bank Governors reinforces Basel reform package... Read here
Report on nature and scope of financial regulation... Read here
Consultative proposals to strengthen resilience of banking ... Read here
Joint Forum releases Report on Special Purpose Entities... Read here
Central Bank Governors respond to global banking crisis... Read here
Revision of accounting standards for financial instruments... Read here
The Basel Committee issues papers on operational risk... Read here
CPSS-IOSCO set up working group for central counterparties... Read here
Basel Committee to enhance Basel II capital framework... Read here
Core Principles for Effective Deposit Insurance Systems ... Read here

CLICK FOR MORE FEATURES & STORIES








                





 

 


      Banking | Technology | Finance | Advertise | Terms of use | Disclaimer | Contact us
                         Banknet India | All rights reserved worldwide.