/

Nematrian Reference Library

[this page | back links]

Set out below is information (held by the Nematrian website) on the reference you have selected

Executive Summary (partial) "This document sets out revised standards for minimum capital requirements for Market Risk by the Basel Committee on Banking Supervision (“the Committee”) … Consistent with the policy rationales underpinning the Committee’s three consultative papers on the Fundamental Review of the Trading Book, the revised market risk framework consists of the following key enhancements: - A revised internal models-approach (IMA). The new approach introduces a more rigorous model approval process that enables supervisors to remove internal modelling permission for individual trading desks, more consistent identification and capitalisation of material risk factors across banks, and constraints on the capital-reducing effects of hedging and diversification. A revised standardised approach (SA). The revisions fundamentally overhaul the standardised approach to make it sufficiently risk-sensitive to serve as a credible fallback for, as well as a floor to, the IMA, while still providing an appropriate standard for banks that do not require a sophisticated treatment for market risk. A shift from Value-at-Risk (VaR) to an Expected Shortfall (ES) measure of risk under stress. Use of ES will help to ensure a more prudent capture of “tail risk” and capital adequacy during periods of significant financial market stress. Incorporation of the risk of market illiquidity. Varying liquidity horizons are incorporated into the revised SA and IMA to mitigate the risk of a sudden and severe impairment of market liquidity across asset markets. These replace the static 10-day horizon assumed for all traded instruments under VaR in the current framework. A revised boundary between the trading book and banking book. Establishment of a more objective boundary will serve to reduce incentives to arbitrage between the regulatory banking and trading books, while still being aligned with banks' risk management practices."

See here to choose a new Category/Sub-Category or here for a list of all references held by the Nematrian website. Please contact us if any of the above material is inaccurate or if there are references you think should be included that we have excluded or vice-versa.

---