BIS: Governors and Heads of Supervision endorse finalised market risk capital framework and Basel Committee work programme

14 January 2019

The Basel Committee's oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS), endorsed a set of revisions to the market risk framework and the Committee's strategic priorities and work programme for 2019.

The revisions to the market risk framework endorsed by the GHOS today enhance its design and calibration by:

• introducing a simplified standardised approach for banks with small or non-complex trading portfolios;
• clarifying the scope of exposures that are subject to market risk capital requirements;
• enhancing the risk sensitivity of the standardised approach by revising the treatment of foreign exchange risk, index instruments and options;
• revising the standardised approach risk weights applicable to general interest rate risk, foreign exchange risk and selected credit spread risk exposures;
• revamping the assessment process to determine whether a bank's internal risk management models appropriately reflect the risks of individual trading desks (the so-called profit and loss attribution test); and
• revising the requirements for identifying risk factors that are eligible for internal modelling and the capital requirement applicable to risk factors that are deemed non-modellable.

These revisions were informed by the Committee's quantitative impact analyses. Once implemented, the revised framework is estimated to result in a weighted average increase of about 22% in total market risk capital requirements relative to the Basel 2.5 framework. By contrast, the framework issued in 2016 would have resulted in a weighted average increase of about 40%. The share of risk-weighted assets (RWAs) attributable to market risk remains low, at around 5% of total RWAs.

The revised market risk framework will take effect as of 1 January 2022, concurrent with the implementation of the Basel III reforms endorsed by the GHOS in December 2017.

The GHOS also endorsed the Committee's strategic priorities and work programme for 2019. The Committee's work programme for 2019 focuses on four key themes:

• finalising ongoing policy reforms, and pursuing targeted new policy initiatives where needed;
• evaluating and monitoring the impact of post-crisis reforms and assessing emerging risks;
• promoting strong supervision; and
• ensuring full, timely and consistent implementation of the Committee's post-crisis reforms.

Press release

Minimum capital requirements for market risk

© BIS - Bank for International Settlements