Interest rate specific risk model

The BIS specific risk charge is intended to ‘protect against adverse movement in the
price of an individual security owing to factors relating to the individual issuer’. The
charge is applied to the gross positions in trading book instruments – banks can only offset matched positions in the identical issue – weighted by the factors in
Table 4.8.
Table 4.8 BIS specific risk charges
Weighting
Issuercategoryfactor Capital charge
Government 0% 0%
Qualifying issuers: e.g. public sector 3.125% 0.25% residual term to final maturity \6M
entities, multilateral development banks
and OECD banks
12.5% 1.0% residual term to final maturity6 –24M
20% 1.6% residual term to final maturity24M ò
Other 100% 8%
Interest rate and currency swaps, FRAs, forward foreign exchange contracts and
interest rate futures are not subject to a specific risk charge. Futures contracts
where the underlying is a debt security, are subject to charge according to the credit
risk of the issuer.
Equity-specific risk model
The BIS specific risk charge for equities is 8% of gross equity positions, unless the
portfolio is ‘liquid and well-diversified’ according to the criteria of the national
authorities, in which case the charge is 4%. The charge for equity index futures,
forwards and options is 2%.