Minimum capital requirements for market risk
The 2007-08 period of severe market stress exposed weaknesses in the framework for capitalising risks from trading activities. In 2009, the Committee introduced a set of revisions to the Basel II market risk framework to address the most pressing deficiencies. A fundamental review of the trading book was also initiated to tackle a number of structural flaws in the framework that were not addressed by those revisions. This has led to the revised market risk framework, which is a key component of the Basel Committee's reform of global regulatory standards in response to the global financial crisis.
The key features of the revised framework include:
- A revised boundary between the trading book and banking book
- A revised internal models approach for market risk
- A revised standardised approach for market risk
- A shift from value-at-risk to an expected shortfall measure of risk under stress
- Incorporation of the risk of market illiquidity
An explanatory note has been published to provide a non-technical description of the rationale and main features of the January 2016 revisions to the market risk framework.
The revised market risk framework comes into effect on 1 January 2019.