medium · FRM Part 2 Operational Risk
In a jurisdiction with a 2.5% CCyB, a bank's 'Specific Risk Add-on' (SRA) for its trading book is 100 million.
How does the CCyB typically interact with this SRA under Basel III?
- The CCyB applies to the RWA associated with the trading book credit exposures, effectively increasing the capital required for specific risk during a boom.
- The CCyB amount is subtracted directly from the SRA charge on the theory that both are meant to cover systemic risk, avoiding double-counting.
- Specific risk sits entirely outside the CCyB's reach, since Basel III designed the buffer to apply only to general market risk, not issuer-specific credit risk exposures.
- Once the Credit-to-GDP gap exceeds the 10% threshold, regulators automatically reclassify the entire SRA charge and fold it directly into the CCyB requirement.
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