The Commission consults on possible changes to the trading book capital requirements for 'incremental' risks. The proposal intends to broaden the scope of a capital requirement for 'incremental risks' in institutions' trading books.
The Commission consults on possible changes to the trading book capital requirements for 'incremental' risks. The updating of European capital requirements goes in line with developments at the international level.
The proposal intends to broaden the scope of a capital requirement for 'incremental risks' in institutions' trading books.
Institutions' current value-at-risk models have not performed as well as expected in periods of stressed markets, the Commission finds. As a consequence, loss events may occur in the trading books that exceed the losses for which institutions are currently required to hold capital.
The incremental default risk charge developed by the Basel Committee produces higher capital requirements than those of value-at-risk models. This is because such models are driven only by default risk, while losses incurred during the recent market turmoil were driven by the widening of spreads of non-defaulted debt instruments.
Deadline for comments is 15 October 2008.
Consultation document
© European Commission
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