PwC's Managing upstream risk: Regulatory reform review - An asian perspective November 2013 | Page 7

Regulatory Updates
2. Banking

• A revised standardised approach that is
sufficiently risk-sensitive to act as a credible
fallback to internal models, and is still
appropriate for banks that do not require
sophisticated measurement of market risk.

2.1 Capital Requirements

Update

The BCBS on 11 November 2013 published
its second consultative document on the
fundamental review of capital requirements
for the trading book. The paper comprises a
detailed set of proposals for a comprehensive
revision of the market risk framework. This
second consultative document provides more
detail on the approaches introduced in May
2012, and sets out a draft text for a revised
market risk framework. It has been informed
by comments received on the first consultative
paper, and lessons learnt from the Committee’s
recent investigations into the variability of
market risk-weighted assets. The key features of
the proposed revised framework include:

• A revised internal models-based approach,
encompassing a more rigorous model
approval process, and more consistent
identification and capitalisation of material
risk factors. Hedging and diversification
recognition will also be based on empirical
evidence that such practices are effective
during periods of stress.
• A strengthened relationship between
the standardised and the models-based
approaches – This is achieved by establishing
a closer calibration of the two approaches,
requiring mandatory calculation of the
standardised approach by all banks, and
requiring mandatory public disclosure of
standardised capital charges by all banks, on
a desk-by-desk basis.

• A revised boundary between the trading
book and banking book – The new approach
aims to create a less permeable and more
objective bound