IntroductionEffective trading liquidity management is a critical aspect of market risk management in banking. Given the volatility in financial markets—driven by changes in interest rates, exchange rates, equity prices, and other economic indicators—banks must adopt a structured and resilient framework to identify, measure, monitor, and control risks associated with trading activities. A sound Market Risk…
IntroductionMarket risk reporting is an essential pillar of a comprehensive market risk management framework. It provides a structured approach to communicating potential financial exposures arising from market fluctuations, ensuring timely dissemination of risk information to key stakeholders. By documenting and reporting on key risk exposures, mitigation strategies, and performance against limits, organizations can enhance their…
IntroductionA Market Risk Management Framework provides a systematic approach to identifying, measuring, mitigating, monitoring, and reporting market risks that may impact an organization’s financial health. These risks—such as interest rate fluctuations, foreign exchange volatility, and equity price changes—can significantly affect earnings and capital. A robust framework integrates well-defined policies, processes, and tools to manage these…
Introduction A Market Risk Management Framework (MRMF) provides a structured methodology for identifying, assessing, mitigating, and monitoring risks arising from fluctuations in financial markets. Among its core components, risk identification serves as the foundational step. It involves systematically recognizing potential market-driven threats—such as economic downturns, interest rate volatility, and geopolitical disruptions—that could adversely affect an…
Introduction A Market Risk Management Framework (MRMF) establishes an organization’s systematic approach to identifying, assessing, mitigating, and monitoring market risks. It defines the roles, responsibilities, and processes necessary to manage these risks effectively, ensuring alignment with the institution’s overall strategic objectives and risk appetite. A well-structured MRMF enhances decision-making, promotes accountability, and strengthens the organization’s…
Market risk refers to the potential for financial losses arising from adverse movements in market variables such as interest rates, exchange rates, and equity prices. Measuring market risk effectively is essential for both investors and financial institutions to mitigate unexpected losses and maintain financial stability. One of the most commonly used tools for quantifying market…
Market risk refers to the potential for financial losses arising from fluctuations in market variables such as interest rates, exchange rates, and asset prices. In the banking sector, market risk—also known as systemic risk—can significantly affect a bank’s profitability and stability. This form of risk stems from movements in financial markets and is inherently difficult…
The ‘Market risk’ is an umbrella term used for multiple types of risk associated with adverse changes in market variables that include Liquidity Risk, Interest rate risk, Foreign exchange rate risk and equity price risk. Market risk causes substantial changes in income and economic value of banks. It’s not about whether a loan will be repaid…
[Critical components like, Important Financial Institutions (SIFIs),Capital Conservation Buffer, Counter Cyclical Buffer, Leverage Ratio and Risk Based Supervision (RBS) are all part of the Basel III framework, which aims to strengthen the resilience of the global banking system.] The Basel III framework, developed by the Basel Committee on Banking Supervision, aims to enhance the resilience…
Capital conservation buffer (CCB) is a concept introduced under the international Basel III norms. According to Basel III norms, during good times, banks must build up a capital buffer that can be drawn from when there is stress. Individual countries are allowed to take their own decision in this matter. In India, to adhere to…