Basel Committee Oversight Body Approves Final Version of Market Risk Framework

The oversight body of the Basel Committee on Banking Supervision (“BCBS”), and the Group of Central Bank Governors and Heads of Supervision (“GHOS”), approved final revisions to the market risk framework. Separately, GHOS also approved the BCBS’s strategic priorities and work program for 2019.

The revised Minimum Capital Requirements for Market Risk replaced an earlier version published in January 2016. The January 2016 market risk framework, which was intended to enhance consistency of implementation, as well as lower arbitrage opportunities between capital requirements for market risk and credit risk, outlined the scope of application for market risk capital requirements. The revised market risk framework will become effective on January 1, 2022.

The revisions to the January 2016 market risk framework include:

  • a simplified standard approach to be used by banks that have smaller or non-complex trading portfolios;
  • clarifications as to the scope of exposures subject to market risk capital requirements;
  • improvements in the standardized approach to treatments of foreign exchange risk and index instruments;
  • changes to the standardized approach risk weights applicable to general interest rate risk and foreign exchange risk, as well as specific exposures subject to credit spread risk;
  • adjustments to the assessment process to determine whether a bank’s internal risk management models appropriately reflect trading risks; and
  • changes to the requirements for the identification of risk factors for internal modeling.

The BCBS maintains a two-year work program that outlines strategic priorities for its policy, supervision and implementation activities. The BCBS strategic priorities and work program for 2019 will focus on four central themes: (i) finalizing policy reforms and tackling new policy initiatives, (ii) assessing and monitoring the effect of post-crisis reforms, (iii) fostering strong supervision and (iv) ensuring the “full, timely and consistent implementation of the Committee’s post-crisis reforms.”

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