On 11 January 2011, the agencies published a Joint Communication on the proposed rules (proposal of January 2011) seeking public comments on the revisions to the agencies` rules on market venture capital in order to implement the 2005, 2009 and 2010 revisions. [8] The main objectives of the proposal were to increase the sensitivity of the rule to insufficiently addressed risks, including default and credit migration; improve modelling requirements in a manner that is consistent with the progress made in risk management since the agencies first implemented the MRA; amend the definition of “covered article” to better capture the items for which treatment is appropriate under the rule; address gaps in the modelling of certain risks; addressing pro-cyclicality; and increase transparency through better disclosures. The objective of increasing the risk sensitivity of the market venture capital rule is particularly important as banks increase their exposure to traded loans and other structured products such as credit default swaps (SCAs) and asset-backed securities, as well as to less liquid products. In general, the risks of these products were not fully addressed by VaR models based on a 10-business day unidirectional strength standard with a 99.0% confidence level. In November 2011, the authorities, along with the SEC, sought comment on an NPR that would implement Section 619 of the Dodd-Frank Act (Volcker NPR). The Volcker NPR, in the definition of “trading account”, includes all exposures of a bank that is subject to the market venture capital rule and falls under the definition of “hedged position”, with the exception of certain foreign exchange and commodity positions, unless they are otherwise in an account that meets the other points of Volcker NPR`s definition of “trading account”. These points are intended to determine whether a banking undertaking subject to Section 619 of the Dodd-Frank Act acquires or takes a position in securities or other covered instruments primarily for short-term trading purposes. In particular, the definition of “trading account” in the Volcker NPR would include any account used by a bank to acquire or borrow one or more covered financial positions for the purposes of (1) short-term resale, (2) the use of short-term actual or anticipated price movements, (3) the realization of short-term arbitrage gains, or (4) hedging one or more of these positions. Under Small Business Administration regulations, a small business includes a custodian bank or bank holding company with total assets of $500 million or less (a small banking organization). As of 30 September 2013, there were 630 small Member State banks. As of June 30, 2013, there were approximately 3,760 junior bank holding companies.

The final rule applies only to banking organizations supervised by the Board whose aggregate business assets and trade liabilities (as disclosed in the latest quarterly regulatory report form for banking organizations) represent 10% or more of quarter-end assets or $1 billion or more. Currently, no small crown-owned member banks or small bank holding companies meet these threshold criteria, so there will be no additional compliance requirements for small banking organizations overseen by the board of directors. For bank holding companies and member sovereign banks subject to this final rule, this final rule should not impose additional reporting, record-keeping or other compliance requirements, other than one-time minimum system changes. The January 2011 proposal introduced new requirements for the prudent valuation of hedged positions, including the maintenance of valuation principles and procedures, the valuation of market or model positions, independent price review and valuation adjustments or reserves. Under the proposal, a bank should take into account unearned credit spreads, closing costs, early termination costs, investment and funding costs, future administrative costs, liquidity and model risk when assessing hedged positions. These valuation requirements reflect the agencies` concerns about deficiencies in banks` assessment of less liquid trading positions, in particular given the previous orientation of the market venture capital rule over a 10-working day time horizon and a unilateral confidence level of 99.0%, which has sometimes proved insufficient to reflect the full extent of the market risk of less liquid positions. The requirement of audit independence can be met by different approaches, provided that those assessing a particular system are independent of the activity for which the system is used, those who designed the system and those who use it as part of a risk management function. Examples of sufficiently independent auditors include: The Committee considers that the reference to CRCs in its market risk rule is appropriate and an appropriate alternative to sovereign exposure ratings. The CRC method is also more granular and risk-sensitive than the previous risk weighting method, which was based solely on membership of a sovereign company in the OECD. In addition, referencing CRCs imposes a moderate additional burden on banking organisations, as the OECD regularly updates CRCs and makes assessments available on its public website. In addition, the use of CRCs is consistent with the treatment of sovereign debt positions in Basel II. [8] According to the RRM, for each backtest day where realized and unrealized net losses resulting from aggregate trading positions exceed the relevant estimate of one-day VaR, an entity-level backtest exception must be recognized.27 For the purpose of calculating capital, the multiplier to be applied to the general estimate of ten-day VaR is generally based on the number of daily backtesting exceptions at the enterprise level.

that occurred in the previous 250. Working days were recorded in accordance with the table in RRM.28. However, the multiplier for modelled estimates of specific risks should be increased from this level in certain cases. (iii) Add-ons for specific risks. The specific risk premiums of an institution regulated by the Board correspond to all the specific risk premiums required under section 217.207 and calculated in accordance with section 217.210. In addition, the RRM requires more frequent updates of the datasets when market conditions so require. A rapid and significant change in the value of a given market or a significant increase in actual or implied market volatility are examples that would likely warrant an increase in retrospective data updates.19 In accordance with this requirement, banking organizations that choose to update records less frequently (e.g., monthly for an institution with significant trading activity) should retain the ability to increase the frequency of increase updates when market conditions so require. Comprehensive review of other resource requirements that may exist under tight market conditions.