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On January 14, 2016, the Basel Committee published revised
standards on minimum capital requirements for market risk, which
form part of the new market risk framework as endorsed by the Group
of Central Bank Governors and Heads of Supervision, known as GHOS,
the Basel Committee's governing body. Improvements in the new
risk framework include: (i) a revised boundary between the banking
and trading books that will reduce scope for arbitrage; (ii) a
revised internal models approach with more coherent and
comprehensive risk capture; (iii) an enhanced model approval
process and more prudent recognition of hedging and portfolio
diversification; and (iv) a revised Standardized Approach that
serves as a credible fall-back and floor to the model-based
approach and facilitates more consistent and comparable reporting
of market risk across banks and jurisdictions. The Basel Committee
will also finalize its efforts to address the problem of excessive
variability in risk-weighted assets by the end of this year. These
efforts will include a proposal to remove the internal model
approach for credit risk and limits on the use of internal models
for credit risk (in particular, through the use of floors). The
GHOS also agreed that the final design and calibration of the
leverage ratio should be based on a Tier 1 definition of capital
and should comprise a minimum level of 3%. The Basel Committee will
finalize the calibration in 2016 to allow time for the leverage
ratio to be implemented as a Pillar 1 measure by January 1,
2018.
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