Media Release Capital Adequacy of Banks: Market Risk

The Reserve Bank of Australia is amending Prudential Statement C3 ‘Capital Adequacy of Banks: Market Risk’ (PS C3). This amendment is a relatively technical one, and follows the Basle Committee on Banking Supervision's recent modification of its treatment of specific risk models.

The minimum capital requirements relating to market risk become effective at the end of 1997. Originally, banks intending to use their own models to measure specific risk for capital adequacy purposes had been required to ensure that those models provided a capital charge of at least half the capital charge required under the ‘standard model’ approach. This so-called floor has now been removed. Banks will benefit from the removal of the floor insofar as its retention would have obliged those using models to make two calculations.

The text of the amendment to PS C3 may be obtained from the Reserve Bank's Information Office