In general, exposure to adverse market influences – on all economic decisions (the exposure to unfavorable trends as in product prices, interest rates, exchange rates, raw material prices or stock prices) and – on investment decisions in particular (to varying degrees, market risk affects all securities), which cannot be eliminated by appropriate portfolio design (market risk represents the portion of risk that can not be eliminated even after taking advantage of diversification). – Risk arising from the fact that the value of collateral may change during the term of a credit transaction. – Market risks are usually divided into – currency, – commodity price, – credit spread, – volatility, – interest rate and – equity price risks, with a further distinction being made between security-specific and general market risks within the latter two. While security-specific risks quantify the potential loss from price changes attributable to the creditworthiness of issuers, general risks measure the value at risk from systematic risks. – In the stress test of the banking system, the risks of a change in market value due to changes in market prices, mostly divided into interest rate risk, equity price risk, exchange rate risk and volatility risk. – In the Financial Soundness Indicators, market risk (sensitivity to market risk) is defined as the ratio of open foreign currency positions to regulatory capital. – See meltdown risk, contagion effects, CAMELS, earnings weakness, correlation risk, general, liquidity crisis plan, margin coverage, market liquidity, market risk stress test, market transparency, price risk, risk, systematic, solvency supervision. – Cf. ECB Monthly Report of April 2001, p. 58, ECB Monthly Report of May 2001, p. 68 ff, BaFin Annual Report 2002, p. 72 ff, Deutsche Bundesbank Monthly Report of December 2003, p. 58 ff, Deutsche Bundesbank Monthly Report of September 2005, p. 62 ff. (stress factors and stress indicators), BaFin Annual Report 2005, p. 117 f. (risk models at banks), Deutsche Bundesbank Monthly Report of December 2005, p. 85 f. (new capital adequacy requirements), BaFin Annual Report 2006, p. 70 (application-driven examinations by BaFin), BaFin Annual Report 2009, p. 103 (on the assessment of market risk in insurers’ risk reports), BaFin Annual Report 2010, p. 165 (requirements for internal market risk models increased), Financial Stability Report 2011, pp. 43 f. (market risks rise with increasing volatility; overviews), Financial Stability Report 2012, p. 39 (the market risks of German institutions since the beginning of the financial crisis).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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