Simplified alternative to the standardised approach to market risk capital requirements.
In January 2016, the Basel Committee on Banking Supervision published the standard Minimum capital requirements for market risk. The standard includes an internal models approach and a standardised approach to measuring market risk capital requirements.
In order to facilitate adoption of this standard for banks other than those that are large and internationally active, this document sets out the Committee's proposal for a simplified alternative to the market risk standardised approach. The proposed reduced sensitivities-based method represents a simplified version of the sensitivities-based method (SbM), which is the primary component of the standardised approach. Significant simplifications relative to the SbM include:
removal of capital requirements for vega and curvature risks
simplification of the basis risk calculation
reduction in risk factor granularity and the correlation scenarios to be applied in the associated calculations
Use of the proposed reduced SbM would be subject to supervisory approval and oversight, and would be available only to banks that meet certain qualitative and quantitative criteria. As proposed, for banks that adopt the reduced SbM, the standardised approach market risk capital requirement would be the sum of three components: (i) the risk charges under the reduced SbM (as proposed in the consultative document); (ii) the default risk charge; and (iii) the residual risk add-on, with the latter two to be calculated as specified in the January 2016 standard.
As an alternative, the Committee also seeks feedback on whether retaining a recalibrated version of the Basel II standardised approach to market risk would better serve the purpose of including a simplified method for market risk capital requirements in the Basel framework.
The Committee welcomes comments on all aspects of this consultative document and the proposed standards text. Comments on the proposals should be uploaded here by Wednesday 27 September 2017. All comments will be published on the website of the Bank for International Settlements unless a respondent specifically requests confidential treatment.
- Publication Date: June 2017
- Publication Type: Consultative
- Publication Status: Closed
- Publication Category: Market Risk
- Number of Pages: 16
- Keywords: Reduced Sensitivities Based Method, Market Risk, FRTB
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