Jon Macaskill of Euromoney has penned an interesting article in the magazine's February edition on the recent introduction of higher market risk capital charges for commercial banks. The new charges, called Minimum Capital Requirements for Market Risk, came into effect last month provides a framework for a whole host of market risks both via a standardised approach and also the advanced approach. Macaskill asks: who is the outlier? Of the 44 banks which were studied to determine the impact of the imposition of the rules in BIS literature, one bank stood out using 2014 data for a 80% increase in market risk capital while other banks saw increases of 20% or much less. Best guesses are that it is a large derivatives dealer but who knows... I dare not go there after the market volatility of late! I do wonder if remnants of structured credit books are adding to the mystery though given how regulators feel about these business which reportedly are seen as driving tail risks.
What is more interesting is to consider the impact upon businesses these changes may bring? Macaskill has already hinted that an announcement could be forthcoming about a market retreat on the back of these changes. All of this will have impact on business models, products offered to clients, and risk perceptions. The full report from Basel can be found here: http://www.bis.org/bcbs/publ/d352.pdf.
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