(a) General requirement.
(1) A Board-regulated institution must
calculate its standardized measure for market risk by following the
steps described in paragraph (a)(2) of this section. An advanced approaches
Board-regulated institution also must calculate an advanced measure
for market risk by following the steps in paragraph (a)(2) of this
section.
(2) Measure for market risk. A Board-regulated
institution must calculate the standardized measure for market risk,
which equals the sum of the VaR-based capital requirement, stressed
VaR-based capital requirement, specific risk add-ons, incremental
risk capital requirement, comprehensive risk capital requirement,
and capital requirement for de minimis exposures all as defined
under this paragraph (a)(2), (except, that the Board-regulated institution
may not use the SFA in section 210(b)(2)(vii)(B) of this subpart for
purposes of this calculation)[, plus any additional capital requirement
established by the Board]. An advanced approaches Board-regulated
institution that has completed the parallel run process and that has
received notifications from the Board pursuant to section 217.121(d)
also must calculate the advanced measure for market risk, which equals
the sum of the VaR-based capital requirement, stressed VaR-based capital
requirement, specific risk add-ons, incremental risk capital requirement,
comprehensive risk capital requirement, and capital requirement for de minimis exposures as defined under this paragraph (a)(2) [,
plus any additional capital requirement established by the Board].
(i) VaR-based capital requirement. A Board-regulated institution’s VaR-based capital requirement equals
the greater of:
(A) The previous day’s VaR-based measure as
calculated under section 217.205; or
(B) The average of the daily VaR-based measures
as calculated under section 217.205 for each of the preceding 60 business
days multiplied by three, except as provided in paragraph (b) of this
section.
(ii) Stressed VaR-based capital requirement. A Board-regulated institution’s stressed VaR-based capital requirement
equals the greater of:
(A) The most recent stressed VaR-based measure
as calculated under section 217.206; or
(B) The average of the stressed VaR-based
measures as calculated under section 217.206 for each of the preceding
12 weeks multiplied by three, except as provided in paragraph (b)
of this section.
(iii) Specific
risk add-ons. A Board-regulated institution’s specific risk add-ons
equal any specific risk add-ons that are required under section 217.207
and are calculated in accordance with section 217.210.
(iv) Incremental risk capital requirement. A
Board-regulated institution’s incremental risk capital requirement
equals any incremental risk capital requirement as calculated under
section 208 of this subpart.
(v) Comprehensive
risk capital requirement. A Board-regulated institution’s comprehensive
risk capital requirement equals any comprehensive risk capital requirement
as calculated under section 209 of this subpart.
(vi) Capital
requirement for de minimis exposures. A Board-regulated institution’s
capital requirement for de minimis exposures equals:
(A) The absolute
value of the fair value of those de minimis exposures that are
not captured in the Board-regulated institution’s VaR-based measure
or under paragraph (a)(2)(vi)(B) of this section; and
(B) With the prior written approval
of the Board, the capital requirement for any de minimis exposures
using alternative techniques that appropriately measure the market
risk associated with those exposures.
(b) Backtesting. A Board-regulated institution must compare each of its most recent
250 business days’ trading losses (excluding fees, commissions, reserves,
net interest income, and intraday trading) with the corresponding
daily VaR-based measures calibrated to a one-day holding period and
at a one-tail, 99.0 percent confidence level. A Board-regulated institution
must begin backtesting as required by this paragraph (b) no later
than one year after the later of January 1, 2014 and the date on which
the Board-regulated institution becomes subject to this subpart. In
the interim, consistent with safety and soundness principles, a Board-regulated
institution subject to this subpart as of January 1, 2014 should continue
to follow backtesting procedures in accordance with the Board’s supervisory
expectations.
(1) Once each quarter, the Board-regulated
institution must identify the number of exceptions (that is, the number
of business days for which the actual daily net trading loss, if any,
exceeds the corresponding daily VaR-based measure) that have occurred
over the preceding 250 business days.
(2) A Board-regulated institution must
use the multiplication factor in Table 1 to section 217.204 that corresponds
to the number of exceptions identified in paragraph (b)(1) of this
section to determine its VaR-based capital requirement for market
risk under paragraph (a)(2)(i) of this section and to determine its
stressed VaR-based capital requirement for market risk under paragraph
(a)(2)(ii) of this section until it obtains the next quarter’s backtesting
results, unless the Board notifies the Board-regulated institution
in writing that a different adjustment or other action is appropriate.
Table 1 to
section 217.204—Multiplication factors based on results of backtesting
| Number of exceptions |
Multiplication factor |
| 4
or fewer |
3.00 |
| 5 |
3.40 |
| 6 |
3.50 |
| 7 |
3.65 |
| 8 |
3.75 |
| 9 |
3.85 |
| 10
or more |
4.00 |
