Document ID: chunk:federal_register_of_legislation:F2024L01519:body:0:p46
Version: federal_register_of_legislation:F2024L01519
Segment Type: other
Provision Reference: 
Character Range: 127435–130427

cent (i.e. a 100 per cent risk capital charge is applied) in accordance with that paragraph, and may not be included in the comprehensive risk approach. For the exposures that the ADI does incorporate in its comprehensive risk approach, the ADI will be required to subject them to a capital charge equal to the higher of the capital charge according to this internally developed approach and eight per cent of the capital charge for specific risk according to the standardised measurement. It will not be required to calculate an incremental risk charge for these positions. It must, however, incorporate them in both the VaR and stressed VaR measures.
 1.          For an ADI to apply the comprehensive risk approach for calculating capital, it must:
        1.           have sufficient market data to ensure that it fully captures the salient risks of these exposures in its comprehensive risk measure in accordance with the standards set forth above;

        2.           demonstrate (e.g. through back-testing) that its risk measures can appropriately explain the historical price variation of these products; and

        3.           ensure that it can separate the positions for which it holds approval to incorporate them in its comprehensive risk measure from those positions for which it does not hold this approval.

 1.          An ADI applying the comprehensive risk approach must report to APRA information on comprehensive risk stress testing, including comparisons with the capital charges implied by the ADI's internal model for estimating comprehensive risks, as required under Reporting Standard ARS 116.0 Market Risk. The ADI must also apply these stress scenarios at least weekly, and any instances where the stress tests indicate a material shortfall of the comprehensive risk measure must be reported to APRA in a timely manner. Based on these stress testing results, or if an ADI does not adequately meet the requirements of paragraphs 77 and 78, APRA may impose a supplemental capital charge against the correlation trading portfolio, to be added to the ADI's internally modelled capital requirement.
Frequency of calculation

 1.          An ADI that uses an internal model to calculate regulatory capital for the incremental risk measure and/or the comprehensive risk approach must calculate the measure(s) at least weekly, or more frequently as directed by APRA. The capital charge for incremental risk is given by the maximum of:
        1.           the average of the incremental risk measures over 12 weeks; and

        2.           the most recent incremental risk measure.

    The capital charge for comprehensive risk is given by the maximum of:

        1.           the average of the comprehensive risk measures over 12 weeks; and

        2.           the most recent comprehensive risk measure.

Framework for the use of back-testing
 1.          An ADI's back-testing program must consist of a periodic comparison of its daily VaR measure