Advanced Concerts in Capturing Market Risk: A ... - ERM Symposium

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Existing Market Risk Rule as implemented for US bank holding companies: requirements for Market Risk VaR measure 4
Market Risk Rule (MRR) for US Bank Holding Companies MRR: based on Market Risk Amendment to Basel I Adjust risk-based capital requirements for Market Risk: - use internal models to calculate VaR market risk measure -capital requirement based on VaR measure plus an add-on for specific risk + capital charge for de minimis exposures Internal models requirements – All trading account + commodity + FX positions must be in VaR (“Value-at-Risk”) model – 10-day movement VaR, 99% confidence level, 1 year historical period – Specific Risk (“SR”) for covered debt and equity positions • Internal (VaR) model must be approved by FRB • Else, conservative standard charges for SR Advanced Concepts in Capturing Market Risk: A Supervisory Perspective, Chicago, IL, March 14, 2011 5
Page 1 and 2: Advanced Concepts in Capturing Mark
Page 3: Background Regulatory Capital: The
Page 7 and 8: Definitions Market Risk: risk of l
Page 9 and 10: Variations in VaR Modeling Approach
Page 11 and 12: Total VaR Calculation & Capital Imp
Page 13 and 14: Length of Time Series & Frequency o
Page 15 and 16: Modeling of Risk Factors & Efficien
Page 17 and 18: Completeness of Risk Capture Risk
Page 19 and 20: What have we seen? Key Risk Factors
Page 21 and 22: Backtesting & Capital Implication 2
Page 23 and 24: Specific Risk Model Approval & Capi
Page 25 and 26: Stressed VaR - Revised Market Risk
Page 27: Conclusions Current MRR uses VaR-b

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