Second report on the regulatory consistency of risk-weighted assets in the trading book issued by the Basel Committee

The Basel Committee on Banking Supervision has today published its second report on the regulatory consistency of risk-weighted assets (RWAs) for market risk in the trading book. This study is a part of its wider Regulatory Consistency Assessment Programme (RCAP), which is intended to ensure consistent implementation of the Basel III framework.

Today's report, which follows up on an initial study conducted by the Committee that was published in January 2013, extended that earlier analysis to more representative and complex trading positions. Consistent with the findings in the first report, the results show significant variation in the outputs of market risk internal models used to calculate regulatory capital. In addition, the results show that variability typically increases for more complex trading positions.

The analysis confirms that differences in modelling choices are the most significant drivers of variation in market risk RWAs across banks. The analysis supports the type of policy recommendations that were identified in the earlier report to reduce the level of variability in market risk RWAs:

(i)           improving public disclosure and the collection of regulatory data to aid the understanding of market risk RWAs;

(ii)          narrowing the range of modelling choices for banks; and

(iii)          further harmonising supervisory practices with regard to model approvals.

In October 2013, the Basel Committee issued a second consultative document on its fundamental review of the trading book, which includes a series of measures, consistent with the above recommendations, to narrow market risk RWA variability. The Committee is also developing proposals to improve Pillar 3 (market discipline) disclosure requirements for banks. These proposals improve comparability of the Pillar 3 information disclosed by banks and significantly enhance the quality, content and consistency of disclosures related to market risk RWAs. This would facilitate users' understanding of remaining RWA variability across banks.

Mr Stefan Ingves, Chairman of the Basel Committee and Governor of Sveriges Riksbank said, "Today's report complements and reinforces the Committee's earlier trading book report. It shows that, as portfolios get more complex, the variability can increase. These findings, along with the results of the Committee's banking book review, have been important inputs to our ongoing work to address RWA variations."