S
StudentSAD
Member
I'm currently struggling with the MCR requirements under Basel II. I've read the forum post at http://acted.co.uk/forums/showthread...ighlight=Basel regarding the minimum capital requirements under the Basel II framework. I just have the following two questions:
Firstly, is the 99% VaR calculated for market risk and the Basic Indicator Approach for operational risk the actual amount of capital that the bank will need to hold (i.e. this is the MCR for market and operational risk)?
If this is the case, I understand that the MCR for the bank would be 8% * (Risk-adjusted Assets based on credit ratings) + 99% VaR for market risk + Basic Indicator Approach result for operational risk?
Secondly, why is market risk only calculated on the capital (i.e. the excess assets) of the bank? This is shown in question 1.24 in the Q&A Bank. I would've thought the bank carries market risk on all assets backing their liabilities (as per insurance frameworks)?
Thank you very much for your help!
Firstly, is the 99% VaR calculated for market risk and the Basic Indicator Approach for operational risk the actual amount of capital that the bank will need to hold (i.e. this is the MCR for market and operational risk)?
If this is the case, I understand that the MCR for the bank would be 8% * (Risk-adjusted Assets based on credit ratings) + 99% VaR for market risk + Basic Indicator Approach result for operational risk?
Secondly, why is market risk only calculated on the capital (i.e. the excess assets) of the bank? This is shown in question 1.24 in the Q&A Bank. I would've thought the bank carries market risk on all assets backing their liabilities (as per insurance frameworks)?
Thank you very much for your help!