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         I. Summary of conclusions


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

I. Summary of conclusions

2. In the comment process, the Committee has taken note of the views expressed bymany banks that the market risks run by major market participants are now too complex to be captured by a measurement system that makes simplifying assumptions about the interaction of various market risk parameters and that does not give enough consideration to non-linear price risk. The latter is relevant most notably for the major traders or issuers of products such as options.

3. The main change introduced is to envisage the possible use of proprietary in-house models for measuring market risks as an alternative to a somewhat amended version of the standardised measurement framework originally proposed. In evaluating the use of proprietary market risk models for determining capital charges, the Committee has given careful consideration to how it should balance the need to preserve the integrity and flexibility of banks' internal models against the need to ensure the transparency and consistency of capital requirements across banks. To balance these needs, the Committee proposes to establish both quantitative and qualitative criteria for those banks which wish to use proprietary models.

4. Other areas where changes of substance to the April 1993 market risk proposal have been introduced are in the treatment of options and in the addition of a separate framework for measuring commodities risk.


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