Regulatory Alerts2012-06-03
Basel Committee on Banking Supervision Consultative Document Entitled Fundamental Review of the Trading Book
The Saudi Arabian Monetary Agency issued a directive requiring all banks to evaluate the Basel Committee on Banking Supervision’s consultative document, which proposes fundamental revisions to trading book capital requirements. The updated framework strengthens market risk standards by redefining book boundaries, implementing stressed calibration, transitioning from value-at-risk to expected shortfall, and incorporating market illiquidity risk. Banks must distribute the proposal to relevant managers, submit comments by 11 August 2012, and finalize internal responses by 15 August 2012 to comply with the regulator’s submission timeline.
.Saudi d-ta6ia.n ../flonl!.fatq d-gencq Banking Supervision Dept. From To Attention Subject Saudi Arabian Monetary Agency All Banks Managing Directors, Chief Executive Officers and General Managers Basel Committee on Banking Supervision (BCBS) Consultative Document entitled: "Fundamental Review of the Trading Book" This consultative document presents the initial policy proposals of the Basel Committee's ("the Committee") fundamental review of trading book capital requirements. These proposals are intended to strengthen capital standards for market risk, and thereby contribute to a more resilient banking sector. As a response to the crisis, the Committee introduced a set of revisions to the market risk framework in July 2009 (part of the "Basel 2.5" rules). However, the Committee recognised at the time that the Basel 2.5 revisions did not fully address all the shortcomings of the framework. This document seeks to address these shortcomings both with regard to the internal models-based and standardised approaches as given below: Key Areas of Committees Focus: 1 . The trading book/banking book boundary 2. Stressed calibration 3. Moving from value-at-risk to expected shortfall 4. A comprehensive incorporation of the risk of market illiquidity 5. Treatment of hedging and diversification 6. Relationship between internal models-based and standardised approaches We suggest that Banks should access this document from Bank for International Settlements website: (http://www.bis.org) and distribute it to their relevant managers and obtain their views. In this regard, all Banks are expected to provide comments to SAMA by 11th August 2012. It is essential that all banks respond by 15th August 2012 in order for SAMA to meet its own deadline with regard to this Consultative document. )f' ' , Abdulrahman Al Kalaf Deputy Governor for Technical Affairs P. 0. Box 2992 - Riyadh 11169, Saudi Arabia - Tel.: 01-463 3000 - Telex 404390 SJ - Fax 01-466 2119