IBANK 6.6.8 Steps in Calculating General Risk Capital Charge

The steps to calculate the general risk capital charge are:

Step 1

Weight the positions in each time band by the risk factor corresponding to those positions in table 6.6.8A.

Table 6.6.8A Time Bands and risk factors

column 1
item
column 2
time band
column 3
risk factor %
column 4
assumed changes in yield %
1 1 month or less 0.00 1.00
2 more than 1 and up to 3 months 0.20 1.00
3 more than 3 and up to 6 months 0.40 1.00
4 more than 6 and up to 12 months 0.70 1.00
5 more than 1 and up to 2 years 1.25 0.90
6 more than 2 and up to 3 years 1.75 0.80
7 more than 3 and up to 4 years 2.25 0.75
8 more than 4 and up to 5 years 2.75 0.75
9 more than 5 and up to 7 years 3.25 0.70
10 more than 7 and up to 10 years 3.75 0.65
11 more than 10 and up to 15 years 4.50 0.60
12 more than 15 years and up to 20 years 5.25 0.60
13 more than 20 years 6.00 0.60

Step 2

Offset the weighted long and short positions within each time band.

Example

If the sum of the weighted long positions in a time band is QR100 million and the sum of the weighted short positions in the band is QR90 million, you offset the positions to come up with a matched position of QR90 million and unmatched position of QR10 million.

Step 3

For each time band, apply a 10% capital charge (vertical disallowance) on the matched position calculated in step 2.

Example

Continuing on from the example in step 2, apply the 10% on the QR90 million matched position to come up with a QR9 million vertical disallowance for the time band.

Step 4

For the unmatched positions calculated in step 2, carry out 2 further rounds of offsetting using the zones (made up of time bands) in table 6.6.8B and apply the appropriate capital charge, as follows:

(a) first between the remaining unmatched positions within each of 3 zones and subject to a charge (expressed as a percentage) as follows:
(i) matched weighted positions within zone 1 x 40%;
(ii) matched weighted positions within zone 2 x 30%;
(iii) matched weighted positions within zone 3 x 30%;
(b) subsequently between the remaining unmatched positions across the 3 different zones (in the order set out below) and subject to a capital charge as follows:
(i) matched weighted positions between zones 1 and 2 x 40%;
(ii) matched weighted positions between zones 2 and 3 x 40%;
(iii) matched weighted positions between zones 1 and 3 x 100%.

The absolute value of the net amount remaining is the net position.

Table 6.6.8B Zones for profit rate

column 1
item
column 2
one
column 3
time bands
1 zone 1 0– 1 month
1– 3 months 3 – 6 months 6 – 12 months
2 zone 2 1– 2 years
2– 3 years
3– 4 years
3 zone 3 4– 5 years
5– 7 years
7 – 10 years
10 – 15 years
15 – 20 years
more than 20 years

Step 5

Calculate the horizontal allowance by adding the charges from paragraphs (a) and (b) of step 4.

Step 6

Calculate the general risk capital charge as the sum of:

(a) the net position calculated from steps 1 to 4;
(b) the vertical disallowance from step 3;
(c) the horizontal disallowance from steps 4 and 5; and
(d) the net charge for positions in options, where appropriate, calculated in accordance with Part 6.3.
Derived from QFCRA RM/2015-2 (as from 1st January 2016).