Professional Documents
Culture Documents
Pradeepta Sethi
TAPMI
Market risk
¢ Risk of losses in on-balance sheet
B and off-balance sheet positions
arising from movements in market
A prices.
S Pillar I: Minimum
capital requirements ¢ The market risk positions subject to
E capital charge requirement are:
L
The risks pertaining to interest
Market Risk ¢
rate related instruments and
equities in the trading book;
I and
I
¢ Foreign exchange risk
(including open position in
precious metals) throughout the
banking and trading books.
¢ Trading book items -
L Market Risk - IMA ¢ Higher the value of VaR, higher the level
of market risk, thereby; larger the level of
minimum required capital for market risk.
I ¢ VaR-based models could be used to
calculate measures of both general
I market risk and specific risk.
Pillar I: Minimum
capital requirements
¢ Pillar II focuses on the aspect of
B
regulator-bank interaction.
A
S ¢ It empowers regulators in
matters of supervision and
E Pillar II: Supervisory
dissolution of banks.
review
L
¢ Recommend the supervisors to
evaluate the banks’ capital level
I in tune with their risk profile and
I ensure regulatory intervention in
case of need
¢ Principle 1: Banks should have a
process [The Internal Capital
Adequacy Assessment Process
(ICAAP)] for assessing their overall
capital adequacy in relation to their risk
B profile and a strategy for maintaining
their capital levels.
A
¢ Principle 2: Supervisors should review
S and evaluate banks’ ICAAP, as well as
their ability to monitor and ensure their
E Pillar II: Supervisory compliance with the regulatory capital
review ratios.
L
¢ Principle 3: Supervisors should expect
banks to operate above the minimum
I regulatory capital ratios and should have
the ability to require banks to hold
I capital in excess of the minimum.