Basel III International Banking Framework MAR20-23: Calculate market risk capital under the standardised approach (sensitivities-based method, DRC and RRAO)

What does MAR20-23 require?

The bank must compute standardised approach capital as the simple sum of the sensitivities-based method, the default risk capital (DRC) requirement and the residual risk add-on (RRAO), and convert it to RWA by multiplying by 12.5 (MAR20.1, MAR20.4). It must calculate and report the result to the supervisor monthly (quarterly for non-banking subsidiaries if approved) and on supervisory demand (MAR20.2-20.3). Under the sensitivities-based method, delta applies to all in-scope instruments and vega and curvature to instruments with optionality, across seven risk classes (MAR21.1-21.2). Aggregation must be repeated under medium, high (correlations multiplied by 1.25, capped at 100%) and low correlation scenarios, taking the largest result (MAR21.6-21.7). DRC captures jump-to-default risk separately for non-securitisations, non-CTP and CTP securitisations with no diversification between them, following the gross JTD, offset, bucket and hedge benefit ratio steps (MAR22.2-22.4). The RRAO applies to instruments with exotic underlyings at a 1.0% risk weight and other residual risks at 0.1% of gross notional, excluding exact back-to-back trades and listed or centrally clearable instruments bearing only other residual risks (MAR23.2-23.8). The correlation trading portfolio is defined in MAR20.5.