Stellungnahme ZKA zum Dokument "Guidelines for Computing Capital for Incremental Risk in the Trading Book"

15. Oktober 2008

Against the backdrop of the ongoing financial market turmoil, we can in principle understand that supervisors are seeking to introduce higher capital requirements for the trading book. Capital requirements should, however, be in line with the risks which will be incurred by institutions in the future. In our opinion, the market turbulence witnessed in the course of the subprime crisis during the past few months does not justify excessive capital charges. The banking industry has already made considerable efforts in many areas of internal risk management to adequately address the causes and effects of the financial market crisis. We believe that a modified approach geared to the individual situation of an institution offers clear advantages over higher capital charges prescribed by supervisors.

In addition, an alignment must be ensured between the internal models used by institutions in the future and supervisory requirements (use test). Particularly in the area of measuring incremental risk, in which there are not yet any market standards, the future development of internal models must not be restricted by rigid supervisory rules. Institutions implement risk models mainly because these are geared more flexibly and appropriately to their individual risk exposure and portfolio structure. Rigid supervisory modelling rules that are predominantly conservative cancel out the benefits of an institution-specific model. This greatly reduces the incentive for risk management based on an internal model.

Due to the differences between previous risk models and the IRC model, particularly with respect to the different model parameters, we have considerable doubts as to whether it will be possible to integrate different risk models into a unified internal management control system (use test).

Banking industry estimates show that the proposed supervisory rules on incremental risk modelling will lead to an enormous increase in the capital requirements for the trading book. Such an increase will have side-effects. Compared with the incremental risk charge (IRC), the short-term VaR for market risk (10 trading days, 99% confidence level) will only make a relatively minor contribution to total capital requirements. This means that the supervisory significance of the short-term VaR for the calculation of capital requirements will be considerably weakened. Furthermore, the capital-based incentive to switch from the market risk standardised approach to internal models will be diminished or actually eliminated by the higher capital requirements for the latter. […]

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