Appendix 3.2
THE 1996 MARKET RISK AMENDMENT
Background: The Explosion of Bank Market Risk
When devising the 1988 Accord, regulators focused primarily on the credit risks that banks were exposed to, and ignored market risk and other risks. But this hardly reflected the reality of many bank risk exposures, even during the 1980s.
Modern banks are engaged in a range of activities that extend well beyond lending and the credit risk this generates. They trade all types of cash instruments, as well as derivatives such as swaps, forward contracts, and options—either for their own account or to facilitate customer transactions.
This kind of bank trading activity grew exponentially in the 1980s and 1990s, so that by the time the Basel Committee published ...
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