The Comprehensive Risk Measure (CRM) under Basel III is a specific capital charge designed to address the risks associated with complex, correlation-dependent trading portfolios. According to the Basel III framework, the CRM applies to correlation trading portfolios, which typically involve instruments such as credit default swaps (CDS), collateralized debt obligations (CDOs), and other structured credit products where the risk arises from the correlation between underlying assets rather than just individual credit exposures. This measure was introduced to capture the additional risks (e.g., basis risk, correlation risk) not adequately covered by the standard Value-at-Risk (VaR) or Stressed VaR models. The Basel Committee on Banking Supervision (BCBS) document "Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems" (December 2010, revised June 2011) explicitly states that the CRM is an incremental charge for the correlation trading portfolio, requiring banks to hold additional capital for these positions. Options trading, swaps trading, and covariance trading are not specifically targeted by the CRM under Basel III.
[Reference:BCBS, "Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems," Section on Market Risk, para. 709–718., ]
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