BIS: Fundamental review of the trading book

This consultation sets out a revised market risk framework and proposes a number of specific measures to improve trading book capital requirements. Key elements of the proposals include: a more objective boundary between the trading book and the banking book that materially reduces the scope for regulatory arbitrage - feedback is sought on two alternative approaches; moving from VAR to expected shortfall, a risk measure that better captures "tail risk"; calibrating the revised framework in both the standardised and internal models-based approaches to a period of significant financial stress, consistent with the stressed VAR approach adopted in Basel 2.5; comprehensively incorporating the risk of market illiquidity, again consistent with the direction taken in Basel 2.5; measures to reduce model risk in the internal models-based approach, including a more granular models approval process and constraints on persification; and a revised standardised approach. Responses to the consultation should be received by 7 September 2012.