IIF Authors

Status: Will be live at 10/03/2017 00:00

Joint Associations Comment on Proposed Simplified Market Risk Approach

Tuesday, October 3, 2017

On June 29, the Basel Committee released the Consultative Document: Simplified alternative to the standardised approach to market risk capital requirements. In this paper the Committee is proposing the introduction of the reduced sensitivities-based method (R-SbM) as a substitute for the sensitivities-based method (SbM) which is the primary component of the standardized approach in the standard Minimum capital requirements for market risk (Standardised Approach), which was published in January 2016.

The motivation for this proposal is that the BCBS has found that the complexity of the SbM may pose implementation challenges for those banks with a low level of trading book activity or small banks which do not have the requisite infrastructure for computing the SbM.

The consultation paper also acknowledges that the design of the R-SbM is significantly different from the current and widely-used Basel II standardized approach and, given the consequent implementation challenges, the Basel Committee is also considering as another alternative the option of a conservative recalibration of the Basel II standardized approach.

The IIF chaired an industry working group (with ISDA and GFMA also involved) to develop the response to this consultation, and the comment letter was submitted to the Basel Committee on September 27, 2017.