Guidelines for computing capital for incremental risk in the trading book
This document provides guidelines on how an incremental risk charge (IRC) model should be developed. It also contains guidance on how supervisors should evaluate banks' IRC models. As there is no single industry standard for addressing the trading book issues noted above, the IRC guidelines generally take the form of high level principles, with considerable flexibility afforded banks in terms of how to operationalise these principles. Banks have to meet the guidelines for calculating the IRC that are laid out in this document to the extent that they seek to model incremental risks according to paragraph 718(xcii) or comprehensive risks according to paragraph 718(xcv) of the Basel II framework as outlined in the July 2009 Revisions to the Basel II market risk framework.