Planned supplement to the Capital Accord to incorporate market risks

April 1995

Introduction

In April 1993, the Basel Committee on Banking Supervision ("the Committee") issued for comment by banks and financial market participants a package of supervisory proposals dealing with netting, market risk, and interest rate risk. One of these proposals, "The supervisory treatment of market risks", set out a framework for applying capital charges to the market risks incurred by banks, defined as the risk of losses in on- and off-balancesheet positions arising from movements in market prices. The Committee has carefully considered the comments received and has made a number of revisions to its earlier proposal. The Committee's revised proposal consists of this cover note, a planned Supplement to the Basle Capital Accord of July 1988 and a discussion paper analysing the issues which arise in relation to the use of banks' internal risk measurement systems as a basis for applying capital charges.