Basel body reviews risk capital charges

MANILA, Philippines - The Basel Committee on Banking Supervision (BCBS) said its recent study shows that the change in market risk capital charges would produce a 4.7-percent increase in the overall Basel III minimum capital requirement.

The study is the result of its interim impact analysis of its fundamental review of the trading book.

The report assesses the impact of proposed revisions to the market risk framework set out in two consultative documents published in October 2013 and December 2014.

Further revisions to the market risk rules have since been made, and the committee expects to finalize the standard by the end of the year.

The analysis was based on a sample of 44 banks that provided usable data for the study and assumed that the proposed market risk framework was fully in force as of December 2014.

It shows that the change in market risk capital charges would produce a 4.7-percent increase in the overall Basel III minimum capital requirement.

When the bank with the largest value of market risk-weighted assets is excluded from the sample, the change in total market risk capital charges leads to a 2.3-percent increase in overall Basel III minimum regulatory capital.

Compared with the current market risk framework, the proposed standard would result in a weighted average increase of 74 percent in aggregate market risk capital.

When measured as a simple average, the increase in the total market risk capital requirement is 41 percent.

For the median bank in the same sample, the capital increase is 18 percent.

Compared with the current internally modeled approaches for market risk, the capital requirement under the proposed internally modeled approaches would result in an increase of 54 percent.

For the median bank, the capital requirement under the proposed internally modeled approaches is 13-percent higher.

Compared with the current standardized approach for market risk, the capital requirement under the proposed standardized approach is 128-percent higher.

For the median bank, the capital requirement under the proposed standardized approach is 51-percent higher.