The Basel Committee on Banking Supervision (Basel Committee) has issued a consultative document, Simplified alternative to the standardised approach to market risk capital requirements.

The standardised approach included in the Basel Committee standard, Minimum capital requirements for market risk (revised market risk framework), was developed to provide a risk-sensitive standard for banks that do not require a modelled treatment for market risk, to serve as a credible fall back to the internal models approach and to facilitate transparent, consistent and comparable reporting of market risk across banks and jurisdictions.

The primary component of the standardised approach is the “sensitivities-based method” (SbM), which provides a framework that can be applied uniformly across a wide spectrum of banks in different jurisdictions while being sufficiently risk-sensitive with respect to the risks relevant to large, internationally active banks.

However, the complexity of the SbM may pose certain implementation challenges for banks that are not large and internationally active and therefore the Basel Committee has now developed a proposal for an alternative, simpler version of the SbM. A reduced sensitivities-based method (R-SbM) is intended to address implementation challenges for banks that maintain smaller or simpler trading books. For banks that adopt the R-SbM, the standardised approach capital requirement will be the simple sum of three components:

  • the risk charges under the R-SbM (as proposed in the consultative document);
  • the default risk charge (set out in paragraphs 134 – 175 of the revised market risk framework); and
  • the residual risk add-on (detailed in paragraph 58 of the revised market risk framework).

The deadline for comments on the consultative document is 27 September 2017.

View Simplified alternative to the standardised approach to market risk capital requirements – consultative document, 29 June 2017

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