21 May COVID RESPONSE – OCC – Effect of Recent Financial Market Volatility on the Market Risk Capital Rule
May 1, 2020 – Response to public question about capital implication under market risk capital rule in light of current COVID-19 market repricing assets, market volatility, liquidity implications. In first quarter of 2020 there was an increase in number of backtesting exceptions, as part of bank Pillar 3 disclosures for market risk questioned implications for rule. Follows April 2020 reporting extension for market risk capital rule (FR 4201).
Market Risk Calculation
Relates to the increase in number of backtesting exceptions and capital implication under market risk capital took supervisory action to respond to bank requests, questions. Additional time may be required to evaluate root cause of backtesting exceptions, which could result in a capital requirement for market risk not commensurate with positions. Supervisors allowed banks to use apply multiplication factor applied as of December 31, 2019, to determine VaR-based capital requirements for market risk and stressed risk.
Allowed until September 30, 2020, as result of impact of COVID-19 on financial markets.
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