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

  • 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: Under development

  • 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 (awaiting translation 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

  • Guidelines on the treatment of CVA risk under SREP

    The Guidelines are based on a policy recommendation contained in the EBA’s CVA report and aim to provide a common European approach to assessing CVA risk under SREP. Additionally, these Guidelines will provide a common European approach to the assessment of capital adequacy of own funds and the determination of potential additional own funds requirements for CVA risk.

    Status: Under development

Opinions

Reports

  • 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

  • EBA results from the 2014 Low Default portfolio (LDP) exercise [2,372.6KB]

    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

  • EBA Report on CVA [2,475.0KB]

    The European Banking Authority (EBA) published today an Opinion addressed to the European Commission on several aspects related to the calculation of own funds requirements for Credit Valuation... Read more

    25/02/2015