Market risk

Market risk can be defined as the risk of losses in on and off-balance sheet positions arising from adverse movements in market prices. From a regulatory perspective, market risk stems from all the positions included in banks' trading book as well as from commodity and foreign exchange risk positions in the whole balance sheet. Traditionally, trading book portfolios consisted of liquid positions easy to trade or hedge. However, developments in banks' portfolios have led to an increase in the presence of credit risk and illiquid positions not suited to the original market capital framework. To address these flaws, material changes in the market risk framework (generally known as ‘Basel 2.5') have been introduced by the CRD III. The EBA, through the publication of its guidelines intend to foster convergence in the implementation of some of these new capital requirements, namely the stressed value at risk (stressed VaR) and the incremental risk charge (IRC) introduced to adequately capture credit risk. The EBA will also draft some draft regulatory standards (RTS) to clarify and better articulate some requirements provided for in the new CRDIV/CRR text.

Technical Standards, Guidelines & Recommendations

  • Discussion paper on the treatment of structural FX under Article 352(2) of the CRR

    The paper outlines the rationale behind the treatment of structural positions as well as broader issues related to the structural FX concept, such as the actual nature of FX risk, considering both the accounting and regulatory perspectives. It also examines in greater detail the potential inconsistencies in the articulation of the FX requirements, both in the current Capital Requirements Regulation (CRR) as well as in the CRR2 proposal for institutions applying the standardised and internal model approaches.

    Status: Under development

  • Amending RTS on CVA proxy spread

    These amending RTS on CVA proxy spread address difficulties associated with the determination of proxy spreads for large numbers of counterparties as well as issues linked with LGDMKT. They specify cases where alternative approaches can be used for the purposes of identifying an appropriate proxy spread and LGDMKT thus leading to a more adequate calculation of own funds requirements for CVA risk.

    Status: Final draft adopted by the EBA and submitted to the European Commission

  • Guidelines on corrections to modified duration for debt instruments

    These Guidelines establish what type of adjustments to the Modified Duration (MD), defined according to the formulas in Article 340(3) of the CRR, have to be performed in order to reflect appropriately the effect of the prepayment risk. These draft Guidelines are relevant for institutions applying the standardised approach for general risk on debt instruments under the Duration-Based calculation.

    Status: Final and translated into the EU official languages

  • RTS on Internal Model Approach for Assessment Methodology

    These draft Regulatory Technical Standards (RTS) specify the conditions under which competent authorities assess the significance of positions included in the scope of market risk internal models, as well as the methodology that competent authorities shall apply to assess an institution’s compliance with the requirements to use an Internal Model Approach (IMA) for market risk. They are a key component of the EBA's work to ensure consistency in models outputs and comparability of risk-weighted exposures and will contribute to harmonise the supervisory assessment methodology across all EU Member States.

    Status: Final draft adopted by the EBA and submitted to the European Commission

Opinions, Reports and other Publications

 

Opinions

Reports

  • Report on 2015 CVA risk monitoring exercise [607.6KB]

    The European Banking Authority (EBA) announced today it has put on hold its draft Guidelines on the treatment of CVA risk under SREP until further notice, due to continued developments in the CVA... Read more

    21/06/2017

  • Report on the interaction with EMIR (ESAS-2017-82 ) [637.3KB]

    The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) published today their joint report on the functioning of the Capital Requirements Regulation (EU) No... Read more

    18/01/2017

  • EBA report on CCR benchmarking 2014 [1,899.1KB]

    The European Banking Authority (EBA) published today two reports on the consistency of RWAs across large EU institutions for large corporate, sovereign and institutions’ IRB portfolios,... Read more

    22/07/2015