12 CFR § 3.204 - Measure for market risk.

§ 3.204 Measure for market risk.

(a) General requirement.

(1) A national bank or Federal savings association must calculate its standardized measure for market risk by following the steps described in paragraph (a)(2) of this section. An advanced approaches national bank or Federal savings association also must calculate an advanced measure for market risk by following the steps in paragraph (a)(2) of this section.

(2) Measure for market risk. A national bank or Federal savings association must calculate the standardized measure for market risk, which equals the sum of the VaR-based capital requirement, stressed VaR-based capital requirement, specific risk add-ons, incremental risk capital requirement, comprehensive risk capital requirement, and capital requirement for de minimis exposures all as defined under this paragraph (a)(2), (except, that the national bank or Federal savings association may not use the SFA in section 210(b)(2)(vii)(B) of this subpart for purposes of this calculation)[, plus any additional capital requirement established by the OCC]. An advanced approaches national bank or Federal savings association that has completed the parallel run process and that has received notifications from the OCC pursuant to § 3.121(d) also must calculate the advanced measure for market risk, which equals the sum of the VaR-based capital requirement, stressed VaR-based capital requirement, specific risk add-ons, incremental risk capital requirement, comprehensive risk capital requirement, and capital requirement for de minimis exposures as defined under this paragraph (a)(2) [, plus any additional capital requirement established by the OCC].

(i) VaR-based capital requirement. A national bank's or Federal savings association's VaR-based capital requirement equals the greater of:

(A) The previous day's VaR-based measure as calculated under § 3.205; or

(B) The average of the daily VaR-based measures as calculated under § 3.205 for each of the preceding 60 business days multiplied by three, except as provided in paragraph (b) of this section.

(ii) Stressed VaR-based capital requirement. A national bank's or Federal savings association's stressed VaR-based capital requirement equals the greater of:

(A) The most recent stressed VaR-based measure as calculated under § 3.206; or

(B) The average of the stressed VaR-based measures as calculated under § 3.206 for each of the preceding 12 weeks multiplied by three, except as provided in paragraph (b) of this section.

(iii) Specific risk add-ons. A national bank's or Federal savings association's specific risk add-ons equal any specific risk add-ons that are required under § 3.207 and are calculated in accordance with § 3.210.

(iv) Incremental risk capital requirement. A national bank's or Federal savings association's incremental risk capital requirement equals any incremental risk capital requirement as calculated under section 208 of this subpart.

(v) Comprehensive risk capital requirement. A national bank's or Federal savings association's comprehensive risk capital requirement equals any comprehensive risk capital requirement as calculated under section 209 of this subpart.

(vi) Capital requirement for de minimis exposures. A national bank's or Federal savings association's capital requirement for de minimis exposures equals:

(A) The absolute value of the fair value of those de minimis exposures that are not captured in the national bank's or Federal savings association's VaR-based measure or under paragraph (a)(2)(vi)(B) of this section; and

(B) With the prior written approval of the OCC, the capital requirement for any de minimis exposures using alternative techniques that appropriately measure the market risk associated with those exposures.

(b) Backtesting. A national bank or Federal savings association must compare each of its most recent 250 business days' trading losses (excluding fees, commissions, reserves, net interest income, and intraday trading) with the corresponding daily VaR-based measures calibrated to a one-day holding period and at a one-tail, 99.0 percent confidence level. A national bank or Federal savings association must begin backtesting as required by this paragraph (b) no later than one year after the later of January 1, 2014 and the date on which the national bank or Federal savings association becomes subject to this subpart. In the interim, consistent with safety and soundness principles, a national bank or Federal savings association subject to this subpart as of January 1, 2014 should continue to follow backtesting procedures in accordance with the OCC's supervisory expectations.

(1) Once each quarter, the national bank or Federal savings association must identify the number of exceptions (that is, the number of business days for which the actual daily net trading loss, if any, exceeds the corresponding daily VaR-based measure) that have occurred over the preceding 250 business days.

(2) A national bank or Federal savings association must use the multiplication factor in Table 1 to § 3.204 that corresponds to the number of exceptions identified in paragraph (b)(1) of this section to determine its VaR-based capital requirement for market risk under paragraph (a)(2)(i) of this section and to determine its stressed VaR-based capital requirement for market risk under paragraph (a)(2)(ii) of this section until it obtains the next quarter's backtesting results, unless the OCC notifies the national bank or Federal savings association in writing that a different adjustment or other action is appropriate.

Table 1 to § 3.204 - Multiplication Factors Based on Results of Backtesting

Number of exceptions Multiplication factor
4 or fewer 3.00
5 3.40
6 3.50
7 3.65
8 3.75
9 3.85
10 or more 4.00

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