On 29 June 2017, the Basel Committee on Banking Supervision (BCBS) published a consultative document on a simplified alternative to the standardised approach to market risk capital requirements.
The simplified approach to market risk capital requirements is aimed at financial institutions which are less active on an international scale and not large in nature. The alternative set out in the BCBS proposal includes a simplified approach to the sensitivities-based method (SbM), which is the main component of the standardised approach. The revised Sb method includes:
- The removal of capital requirements for vega and curvature risks;
- Simplification of the basis risk calculation method; and
- A decreased risk factor granularity and correlation scenarios to be applied in the associated calculations.
The revised SbM will be subject to supervisory approval and oversight, and will only be available to financial institutions that meet specific qualitative and quantitative requirements.
As an alternative, the Committee also seeks feedback on whether retaining a recalibrated version of the Basel II standardised approach to market risk would better serve the purpose of including a simplified method for market risk capital requirements in the Basel framework.
To conclude: BCBS’ proposal of the alternative standardised market risk approach is still in its review phase and all comments on the proposal need to be submitted before September 27th 2017.