On November 6, 2020, ISDA submitted a response to a consultation by the Prudential Regulation Authority (PRA) on the calculation of risks not in value at risk (VAR) and stressed VAR.
Market volatility related to the COVID-19 outbreak has highlighted elements of the market risk framework that may lead to an excessively procyclical increase in own funds requirements during periods of stress. For two of those elements (frequency of calculation for the risks-not-in-VAR measure and identification of a ‘period of significant financial stress relevant to the institution’s portfolio’ for the stressed VAR calculation), the PRA proposes to set expectations that are intended to attenuate the procyclicality in own funds requirements for market risk.
The industry commends the PRA’s timely actions throughout 2020 to provide support and guidance to firms during the period of severe market volatility caused by COVID-19, although there is concern that the proposals in this consultation may lead to overly burdensome operational complexities without the desired outcome of reducing the volatility of market risk capital requirements during a crisis period.
Documents (1) for Consultation Response on Risks Not in VAR and Stressed VAR
Latest
ISDA, FIA, GFMA, CMC, CMCE Respond to IOSCO on Best Practices for OTC Commodity Derivatives
ISDA, FIA, the Global Financial Markets Association (GFMA), the Commodity Markets Council (CMC) and the Commodity Markets Council Europe (CMCE), have responded to the International Organization of Securities Commissions' (IOSCO) consultation report on best practices for over-the-counter (OTC) commodity derivatives...
Joint Response to 2026 US G-SIB Surcharge Proposal
On June 18, ISDA, the Securities Industry and Financial Markets Association and the Institute of International Finance submitted a joint response to US agencies on proposed changes to the surcharge for global systemically important banks (G-SIBs). The associations welcome the...
Eyeing the Basel III Finish Line
An effective regulatory capital framework relies on multiple ingredients, from appropriate drafting to rigorous testing and consultation. Even minor calibration distortions can inflate capital requirements, which could negatively affect the capacity of banks to support deep and liquid markets, with...
Joint Comment Letter on Basel III Endgame Proposal
The Institute of International Finance (IIF), the International Swaps and Derivatives Association, Inc. (ISDA) and the Securities Industry and Financial Markets Association (SIFMA) today submitted a joint comment letter to the Board of Governors of the Federal Reserve System, the...