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Incremental Risk Charge
How RiskMetrics Can Help You Become IRC Compliant
The IRC requirements are part of the Market Risk regulatory requirements, but the necessary functionality falls within the credit risk domain. RiskMetrics' expertise covers the spectrum from market to credit risk.
| Click here to find out how RiskMetrics helped RMB.
The investment banking arm of FirstRand, one of South Africa's largest JSE-listed financial services groups, worked with RiskMetrics Group to successfully build consistent risk frameworks that integrate market and credit risk. allowing them to create a framework for calculating the Incremental Risk Charge in the trading book. |
Having defined the standard in both market and credit risk management, RiskMetrics is able to offer its banking clients the advantage of time-tested, transparent methodology, comprehensive data coverage and an additional consulting service provided by internal consultants with deep expertise of the regulatory and risk management needs of tier 1 banks.
CreditManager's proven, transparent methodology, flexible installation (clients can choose between ASP or local installation) and RiskMetrics’ experienced in-house implementation team ensure rapid deployment, helping your bank meet the 31 December 2010 regulatory deadline.
CreditManager for IRC – Client Benefits:
- Founded upon the same methodology and analytical tools which are used by many central banks themselves
- Time-tested model provides complete IRC transparency to regulators, investors and the front office
- Full suite of standard analytical and reporting tools
- IRC calculation now available
- Comprehensive documentation for the IRC model
- Fast implementation
- Full lifecycle support by your dedicated account manager
Learn more about CreditManager
<div onClick="RMGBlackOutMagicHide('Readypop');" class="closer"> </div><h1>Are you ready for the Incremental Risk Charge? Less than one year to IRC compliance…</h1><p>The IRC applies to Banks subject to the 1996 Market Risk Amendment (MRA), particularly to those adopting an Internal Value at Risk (VaR) Model that received approval from the respective National Banking Regulator.</p>
<p>The IRC was originally devised by The Bank of International Settlements' Basel Committee on Banking Supervision in 2007 to ensure that banks adequately measure and capitalise their risk from potential default events in their trading book.</p>
<p>The IRC was further developed following <a href="http://www.bis.org/publ/bcbs14849/ca/rm.pdf" target="_blank">feedback</a> from banks and market players such as RiskMetrics Group, and in July 2009, the Basel Committee issued revised guidelines for the charging of capital for incremental risk on the trading book.</p>
<div onClick="RMGBlackOutMagicHide('RMpop');" class="closer"> </div><h1>Implementation Requirements</h1>
<p>Under the new IRC guidelines, banks are required to hold capital to a one year time horizon to a confidence level of 99.9%, considerably above the 10 day 99% Value at Risk used for day-to-day market risk management purposes.</p>
<p>The deadline for the full implementation of IRC requirements is 31 December 2010, and banks will need to incorporate all remaining price risks for credit positions (i.e. risks that are unrelated to defaults and credit migrations) by then.</p>
<p>The overarching objective of the IRC is to improve the alignment of regulatory capital requirements with the exposure of a bank’s trading book positions and its economic capital practices.</p><h1>IRC Challenges Encountered by Banks:</h1><ul><li>Implementation deadline looming at the end of this year</li><li>Concerns that the IRC implementation will lead to a significant increase in capital</li><li>Practical implementation concerns such as a lack of reliable data</li></ul>
