This KPMG in the U.S. publication explores the current state of market risk measurement and the associated regulatory capital requirements in the U.S.
As the financial crisis unfolded in 2007, several limitations became apparent in the current banking risk capital framework—in particular, market risk. For example, significant trading book losses resulted in losses in excess of regulatory capital requirements. To strengthen the overall framework, the Basel Committee on Banking Supervision released revisions to the market risk amendment (MRA) in July 2009. The proposed MRA enhancements have been implemented by the Canadian regulator with banks expected to comply by December 31, 2010. At most banks, the assessment, development, and implementation of internal models and enhanced processes is underway.
During 2009, KPMG in the U.S. conducted a survey to assess potential MRA modifications, forecasted regulatory agency guidance, and broad industry implementation practices. The report focuses on critical MRA implementation issues, such as specific risk “internal model” requirements for Basel II banks, market risk capital measurement methodologies, and market risk capital organizational responsibilities. The survey also includes participants from among the large Canadian banks.