Financial institutions urged to balance capital and risk management
While lauding the aim of the BCBS to strengthen capital standards for managing market risks, bankers are cautious about an overly prescriptive approach. October 31, 2012 | Esther TanThe global financial crisis exposed a number of weaknesses and shortcomings in the current trading book regime which is characterised by undercapitalisation and inconsistencies in the treatment of capital between the trading and banking books. The Asian Banker and SunGard hosted a roundtable dialogue in Singapore with risk managers and practitioners from Bank Mandiri, DBS, Hong Kong Monetary Authority, Standard Chartered Bank, Singapore Mercantile Exchange and UOB to discuss the proposed changes to market risks regulation under Basel Committee on Banking Supervision’s (BCBS) “Fundamental Review of the Trading Book”. Participating bankers lauded the aim of the BCBS’ proposal to strengthen capital standards for managing market risks. However, they are concerned that the proposal may be trying to address too many issues at one go without giving sufficient attention to the complexities and interrelated nature of the issues involved—for example the need to view the objectives of economic capital management and risk management as two sides of the same coin. Fundamentally, they are concerned that the proposal is too prescriptive and does not allow for flexibility. Regulators should be more concerned about macro-prudential risk management than micro-managing banks. While there is general agreement that the valuation approach is more straightforward and in line with current accounting treatment for fair valued assets, participants were undecided whether it accurately defined their current trading business as this approach may bring more activities into the trading book that may not strictly be so. They felt the evidence-based approach is better able to capture trading activities as they are defined today though the requirement to prove “trading evidence” could be onerous.<... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: Markets & Exchanges, Risk & ComplianceMarkets Exchanges,Risk & Compliance, Markets & Exchanges,Risk & Compliance, Keywords:The Asian Banker, SunGard, Bank Mandiri, DBS, HKMA, Standard Chartered Bank, SMX, MAS, UOB BCBS, ES, VaR The Asian Banker, SunGard, Bank Mandiri, DBS, HKMA, Standard Chartered Bank, SMX, MAS, UOB BCBS, ES, VaR
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