--- kind: "section" citation: "12 C.F.R. § 217.204" title: "12" number: "217.204" heading: "Measure for market risk." url: "https://uscodex.org/cfr/12/217.204" --- # §217.204. Measure for market risk. - (a) **General requirement.** - (1) A Board-regulated institution must calculate its standardized measure for market risk by following the steps described in [paragraph (a)(2)](#a-2) of this section. An advanced approaches Board-regulated institution also must calculate an advanced measure for market risk by following the steps in [paragraph (a)(2)](#a-2) of this section. - (2) **Measure for market risk.** A Board-regulated institution must calculate the standardized measure for market risk, which equals the sum of the VaR-based capital requirement, stressed VaR-based capital requirement, specific risk add-ons, incremental risk capital requirement, comprehensive risk capital requirement, and capital requirement for de minimis exposures all as defined under this [paragraph (a)(2)](#a-2), (except, that the Board-regulated institution may not use the SFA in [section 210(b)(2)(vii)(B)](/cfr/12/210.md?p=b-2-vii-B) of this subpart for purposes of this calculation)[, plus any additional capital requirement established by the Board]. An advanced approaches Board-regulated institution that has completed the parallel run process and that has received notifications from the Board pursuant to [§ 217.121(d)](/cfr/12/217.121.md?p=d) also must calculate the advanced measure for market risk, which equals the sum of the VaR-based capital requirement, stressed VaR-based capital requirement, specific risk add-ons, incremental risk capital requirement, comprehensive risk capital requirement, and capital requirement for de minimis exposures as defined under this [paragraph (a)(2)](#a-2) [, plus any additional capital requirement established by the Board]. - (i) **VaR-based capital requirement.** A Board-regulated institution's VaR-based capital requirement equals the greater of: - (A) The previous day's VaR-based measure as calculated under [§ 217.205](/cfr/12/217.205.md); or - (B) The average of the daily VaR-based measures as calculated under [§ 217.205](/cfr/12/217.205.md) for each of the preceding 60 business days multiplied by three, except as provided in [paragraph (b)](#b) of this section. - (ii) **Stressed VaR-based capital requirement.** A Board-regulated institution's stressed VaR-based capital requirement equals the greater of: - (A) The most recent stressed VaR-based measure as calculated under [§ 217.206](/cfr/12/217.206.md); or - (B) The average of the stressed VaR-based measures as calculated under [§ 217.206](/cfr/12/217.206.md) for each of the preceding 12 weeks multiplied by three, except as provided in [paragraph (b)](#b) of this section. - (iii) **Specific risk add-ons.** A Board-regulated institution's specific risk add-ons equal any specific risk add-ons that are required under [§ 217.207](/cfr/12/217.207.md) and are calculated in accordance with [§ 217.210](/cfr/12/217.210.md). - (iv) **Incremental risk capital requirement.** A Board-regulated institution's incremental risk capital requirement equals any incremental risk capital requirement as calculated under [section 208](/cfr/12/208.md) of this subpart. - (v) **Comprehensive risk capital requirement.** A Board-regulated institution's comprehensive risk capital requirement equals any comprehensive risk capital requirement as calculated under [section 209](/cfr/12/209.md) of this subpart. - (vi) **Capital requirement for de minimis exposures.** A Board-regulated institution's capital requirement for de minimis exposures equals: - (A) The absolute value of the fair value of those de minimis exposures that are not captured in the Board-regulated institution's VaR-based measure or under [paragraph (a)(2)(vi)(B)](#a-2-vi-B) of this section; and - (B) With the prior written approval of the Board, the capital requirement for any de minimis exposures using alternative techniques that appropriately measure the market risk associated with those exposures. - (b) **Backtesting.** A Board-regulated institution must compare each of its most recent 250 business days' trading losses (excluding fees, commissions, reserves, net interest income, and intraday trading) with the corresponding daily VaR-based measures calibrated to a one-day holding period and at a one-tail, 99.0 percent confidence level. A Board-regulated institution must begin backtesting as required by this [paragraph (b)](#b) no later than one year after the later of January 1, 2014 and the date on which the Board-regulated institution becomes subject to this subpart. In the interim, consistent with safety and soundness principles, a Board-regulated institution subject to this subpart as of January 1, 2014 should continue to follow backtesting procedures in accordance with the Board's supervisory expectations. - (1) Once each quarter, the Board-regulated institution must identify the number of exceptions (that is, the number of business days for which the actual daily net trading loss, if any, exceeds the corresponding daily VaR-based measure) that have occurred over the preceding 250 business days. - (2) A Board-regulated institution must use the multiplication factor in Table 1 to § 217.204 that corresponds to the number of exceptions identified in [paragraph (b)(1)](#b-1) of this section to determine its VaR-based capital requirement for market risk under [paragraph (a)(2)(i)](#a-2-i) of this section and to determine its stressed VaR-based capital requirement for market risk under [paragraph (a)(2)(ii)](#a-2-ii) of this section until it obtains the next quarter's backtesting results, unless the Board notifies the Board-regulated institution in writing that a different adjustment or other action is appropriate. ## Notes ### Authority Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 1818, 1828, 1831n, 1831o, 1831p-1, 1831w, 1835, 1844(b), 1851, 3904, 3906-3909, 4808, 5365, 5368, 5371, 5371 note, and sec. 4012, Pub. L. 116-136, 134 Stat. 281. ### Source Source: Reg. Q, 78 FR 62157, 62285, Oct. 11, 2013, unless otherwise noted.