Large Bank Examination Workshop February 2026

Basel II

• Basel II – 2004

 Enhanced risk coverage • Credit • Market and • Operational risks  A menu of approaches – standardized to model based with increasing complexity  Three pillar approach • Basel II copied and pasted the capital charge for Basel I market risk amendment of 1996

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Market Risk

• As a result, the capital charge framework for market risk did not keep pace with new market developments and practices  More complex securities  Derivatives • Capital charge for market risk in trading book calibrated much lower compared to banking book positions on the assumption that markets are liquid and positions can be wound up or hedged quickly

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