| The
FDIC, the Office of the Comptroller of the Currency
and the Federal Reserve Board have jointly proposed
for public comment a rule to require banks with
large trading portfolios to monitor the performance
of the internal models used to estimate the market
risk of their portfolios. Under this proposal,
affected banks would compare past estimates of
market risk with actual results -- a process known
as "backtesting." Banks using models that produce
poor backtesting results may be required to increase
their capital for market risk. A copy of the Federal
Register notice describing the proposal is
attached.
The proposed rule expands on a July 1995 proposal
(see FIL-50-95, dated July 31, 1995) to establish
a capital requirement for market risk in foreign
exchange and commodity activities and in the trading
of debt and equity instruments. Under the July
proposal, institutions with large trading activities
would calculate their risk-based capital requirements
using their own internal model estimates of "value-at-risk"
-- essentially a probability-weighted measure
of the amount a trading portfolio might decline
during a given holding period.
The FDIC will accept public comments on the new
proposal until April 5, 1996. For more information
about the proposal, please contact one of the
FDIC officials listed on Page 9114 of the attached
Federal Register notice.
|
Nicholas
J. Ketcha Jr.
|
|
Director
|
Attachment:
PDF Format (54 kb, PDF help or hard copy),HTML
Format
Distribution: FDIC-Supervised Banks (Commercial
and Savings)
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