Last Friday, the Basel Committee hit risk managers, capital modellers and compliance officers of all financial institutions with three more consultative documents.
1. Revisions to the Basel II market risk framework,
2. Guidelines for computing capital for incremental risk in the trading book, and
3. Proposed enhancements to the Basel II framework were released simultaneously.
Comments on the first two papers are due back on March 13th and on the supervision and disclosure proposals by April 17th.
The three documents are closely linked (some of the press statements look to have suffered from cut-and-paste reuse) and look closely at the use of value-at-risk (VaR). There are proposals for an incremental risk capital charge for unsecuritised credit products, a stressed additional VaR for major events to counter procyclical impacts, and to remove the preferential treatment for portfolios that are categorised as liquid and well-diversified. They also propose that the new charges will take migration risk into account as well as default risk.
See full Press Release.