New market risk code won’t trigger big bank capital hikes: Basel
Most banks will not have to hike capital significantly to meet stricter rules to counter trading risks, a survey showed yesterday, after Asian nations sought to delay introducing the code citing concerns about the need for more funds.
The code, known as the “fundamental review of the trading book” or FRTB, was drawn up by the Basel Committee on Banking Supervision and tightens “market risk” capital requirements.
The new rules, which are due to come into force in 2019, aim to reduce differences in how much capital banks set aside to cover risks from holding stocks, bonds and derivatives.
Banks say the rules will require them to sharply increase their capital, making them less willing to make markets as long as they have not raised the extra cash. Responding to concerns, some Basel member states agreed to delay introducing the code. Basel issued an update yesterday outlining the impact of the revised rules on 89 large banks in 20 countries.
It said the capital needed to cover trading risks would rise by 52 percent for big banks and double that for smaller ones. But, given trading was a small portion of banking activities, overall capital would only need to rise by 2 percent, it said.
“Generally, banks with less material trading book positions have in some instances reported significant increases in market risk capital (MRC) requirements, but the relative impact of those changes on overall MRC may be relatively small,” it said.