Market risk disclosure requirements up for renewal, OCC invites comments

Public disclosure requirements for national banks and federal savings associations (FSAs) with “significant” market risk exposure would be renewed without change under a proposal issued by the nation’s top banking regulator for a 60-day public comment period.

The market risk rules, administered by the Office of the Comptroller of the Currency (OCC), apply to institutions with aggregate trading assets and liabilities equal to 10% or more of quarter-end total assets or $1 billion or more, based on data in their most recent call reports, according to the notice for comment scheduled to appear Friday in the Federal Register. OCC notes the rules (Chapter 12, part 3, subpart F of the Code of Federal Regulations, or CFR) capture positions for which the market risk capital rules are appropriate; reduce pro-cyclicality in market risk capital requirements; enhance the risk sensitivity of the OCC’s capital requirements by measuring risks that are not adequately captured under the requirements for credit risk; and increase transparency through enhanced disclosures.

The information collection requirements are located at 12 CFR 3.203 through 3.212. The rules enhance risk sensitivity and include requirements for the public disclosure of certain qualitative and quantitative information about the market risk of national banks and federal savings associations. “The collection of information is necessary to ensure capital adequacy appropriate for the level of market risk,” the notice says.

As recapped in the proposal, the OCC’s market risk rules do the following:

  • set forth the requirements for applying the market risk framework;
  • require national banks and FSAs to have clearly defined policies and procedures for determining which trading assets and trading liabilities are trading positions and specifies the factors an institution must take into account in drafting them;
  • require national banks and FSAs to have clearly defined policies and procedures for actively managing all covered positions and specify minimum requirements for those policies and procedures;
  • require the review, at least annually, of internal models and specify certain requirements for those models;
  • require the internal audit group of a national bank or FSA to report, at least annually, to the board of directors on the effectiveness of controls supporting the market risk measurement systems;
  • require national banks and FSAs to conduct quarterly back-testing;
  • require institutions to demonstrate to the OCC the appropriateness of proxies used to capture risks within value-at-risk models;
  • require institutions to develop, retain, and make available to the OCC value-at-risk (VaR) and profit-and-loss information on sub-portfolios for two years;
  • require national banks and FSAs to have policies and procedures that describe how they determine the period of significant financial stress used to calculate stressed VaR models, and to obtain prior OCC approval for any material changes to these policies and procedures;
  • detail requirements applicable to a national bank or FSA when the institution uses internal models to measure the specific risk of certain covered positions;
  • require institutions to obtain prior written OCC approval for incremental risk modeling;
  • require prior OCC approval for the use of a comprehensive risk measure;
  • require national banks and FSAs to retain and report the results of supervisory stress testing;
  • require national banks and FSAs to document an internal analysis of the risk characteristics of each securitization position in order to demonstrate an understanding of the position;
  • require quarterly quantitative disclosures, annual qualitative disclosures, and a formal disclosure policy approved by the board of directors that addresses the approach for determining the market risk disclosures it makes.

OCC estimates 12 institutions are affected by these requirements and an annual burden per respondent of 1,964 hours.

No changes are included in the request for comments, but input is sought on the following:

(a) whether the collection of information is necessary for the proper performance of the functions of the OCC, including whether the information has practical utility;

(b) the accuracy of the OCC’s estimate of the burden of the collection of information;

(c) ways to enhance the quality, utility, and clarity of the information to be collected;

(d) ways to minimize the burden of the collection on respondents, including through the use of automated collection techniques or other forms of information technology; and

(e) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

Information Collection Renewal; Comment Request; Market Risk