On Monday January 14th, 2019 the Group Central Bank Governors and Heads of Superivison (GHOS) have endorsed a couple of revisions to the market risk framework and the Committee’s strategic priorities and work programme for 2019.
Revisions to the market risk framework
The revisions apply to the design and calibration of the market risk framework. Changes include:
- An introduction of a simplified standardised approach for banks with small or non-complex trading portfolios;
- A clarification of the exposure scopes which are subject to market risk capital requirements;
- A revision of the treatment of foreign exchange risk in order to enhance the risk sensitivity of the standardised approach;
- A review of the assessment process to determine whether a bank’s internal risk management models appropriately reflect the risks of individual trading desks; and
- A revision of risk factor requirements for internal modeling
The above revisions were concluded from the Committee’s quantitative impact analyses. The revised framework is estimated to result in a weighted average increase of about 22% in contrast to the 2016 framework (weighted average increase of approximately 40%).
The updated market risk framework is set to be effective as of January 1st, 2022, which is concurrent with the implementation of the Basel III reforms (endorsed by GHOS in 2017).
Revisions to the 2019 work programme
Another endorsement by GHOS applies to the Committee’s strategic priorities and work programme for 2019. The work programme focuses around four key areas including (1) the finalization of ongoing policy reforms, (2) the evaluation of the impact of post-crisis reforms and emerging risks, (3) the promotion of strong supervision and (4) ensuring full and consistent implementation to the post-crisis reforms. The main focus lies on evaluating the post-crisis reforms and to assess new emerging vulnerabilities in the banking system.