Basel Committee Issues Revised Market Risk Framework

The Basel Committee today issued a revised framework for market risk capital requirements. The committee estimated that the updated framework — which takes effect Jan. 1, 2019 — is expected to result in a median increase of 22 percent in total market risk capital requirements for the large financial institutions affected.

Among other things, the framework more clearly defines the boundary between an institution’s trading book and banking book and revises the internal models approach for market risk to better account for “tail risks” and market illiquidity risk. The standardized approach to market risk has also been revised so that it remains suitable for banks with limited trading activity while serving as a credible fallback for the internal models approach.