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Committees at the Bank for International Settlement (BIS)

Proposal To Issue A Supplement To The Basel Capital Accord To Cover Market Risk

1. In April 1993, the Basle Committee on Banking Supervision 1 ("the Committee") issued for comment by banks and financial market participants a package of supervisory proposals dealing with netting, market risk, and interest rate risk. One of these proposals, "The supervisory treatment of market risks", set out a framework for applying capital charges to the market risks incurred by banks, defined as the risk of losses in on- and off-balance sheet positions arising from movements in market prices. 2 The Committee has carefully considered the comments received and has made a number of revisions to its earlier proposal. The Committee's revised proposal consists of this cover note, a planned Supplement to the Basle Capital Accord of July 1988 and a discussion paper analysing the issues which arise in relation to the use of banks' internal risk measurement systems as a basis for applying capital charges. Comments on the package of proposals are invited by end-July 1995.


1. The Basle Committee on Banking Supervision is a Committee of banking supervisory authorities which was established by the central-bank Governors of the Group of Ten countries in 1975. It consists of senior representatives of bank supervisory authorities and central banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, Netherlands, Sweden, Switzerland, United Kingdom and the United States. it usually meets at the Bank for International Settlements in Basle, where its permanent Secretariat is located.

2 The risks covered by the proposed framework were: (a) the risks in the trading book of debt and equity instruments and related off-balance-sheet contracts and (b) foreign exchange risk.

I. Summary of conclusions

II. Main comments received in the consultative process

III. The use of internal models for supervisory purposes

IV. The standardised methodology

V. The definition of capital

VI. Other issues relating to the operation of capital requirements for market risks

VII. Co-operation with other supervisors

VIII. Timing of consultation and implementation


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