Proposed Agency Information Collection Activities; Comment Request (FED proposes to extend – with revisions – the recordkeeping, reporting, and disclosure requirements of banks in connection with the Market Risk Capital Rule)

On December 4, 2023, the Board of Governors of the Federal Reserve System (FED) published in the Federal Register its proposal to extend for a period of three years – with revisions – the recordkeeping, reporting, and disclosure requirements of banks, bank holding companies, and savings and loan holding companies in connection with the Market Risk Capital Rule which obliges institutions to hold sufficient capital to cover their market risk. Such recordkeeping, reporting, and disclosure obligations include among others:
– the obligation to regularly report an institutions market risk following prescribed (approved) procedures,
– the documentation and recordkeeping of the used valuation methods,
– the documentation and recordkeeping of the capital adequacy assessment process,
– the documentation and recordkeeping of trading strategies to hedge trading positions, and
– specific requirements for the trading of securitized assets and the evaluation thereof.
The revision would install a previously omitted requirement, namely the need to have a process for prudent valuation of market risk positions including policies and procedures on the „valuation of positions, marking positions to market or to model, independent price verification, and valuation adjustments or reserves. The valuation process must thereby consider, as appropriate, unearned credit spreads (e.g. in case of premium bonds), close-out costs, early termination costs, investing and funding costs, liquidity, and model risk“.
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Comments on the proposed revision and the extension may be submitted to the FED up to February 2, 2024.