Commentary and analysis of the latest market risk capital regulatory reports of the six largest U.S. institutions with component contributions, a number of which are surprisingly high relative to the others.

Introduction

In August, I wrote Building an App for Market Risk Capital Metrics of US Banks, in which I focused mostly on the building an application part followed by market risk metrics for 2Q25.

While I have not used that application since August, it is nice to see that is still available on claude.ai and can be used by uploading this csv file.

As we now have ActrixFT Apps, today I will use the BHC view to look at the most recent (Sep25) market risk capital metrics of the 6 largest U.S. Banks.

Market Risk Weighted Assets

Let’s start with the end result, the risk weighted assets (RWA) that are required by bank regulation for market risk, commonly abbreviated as mRWA.

We will concentrate on on the standardised method, rather than the advanced method, as the former is better for comparing institutions.

As commented below the chart, JPMorgan increasing 13.3% YoY to $105 billion mRWA is the largest. The rest with much lower increases or decreases.

The cumulate mRWA of these 6 banks as of Sep25 was $445 billion, up from $430 billion a year earlier, an increase of 3.4%.

Let’s look next into the component metrics of mRWA:

• Value-at-Risk (VaR)
• Stressed VaR
• Specific Risk Add-Ons
• Incremental Risk
• Comprehensive Risk measure
• De minimis and Other

Value-at-Risk

First Value-at-Risk (VaR), where the average of the preceding 60 business days VaR multiplied by 3 is the key metric input to mRWA.

As noted above, Goldman with the highest at $1.2billion in Sep25 declining 19% YoY and Morgan Stanley increasing the most YoY.

This metric is multiplied by 12.5 to get to the contribution to mRWA, meaning that the Sep25 cumulative total of $3.96 billion becomes $49.5 billion and represents 11% of the cumulative mRWA of $445 billion.

For each institution this contribution varies from the lows of 4.2% for Wells Fargo and 6.7% for JPMorgan to highs of 15.6% for Morgan Stanley and 17.3% for Goldman Sachs.

Stressed VaR

The next key component is VaR for period of market stress; or specifically 3 times the average of the preceding 12 weeks stressed VaR.

Again multiplying by 12.5 to get the contribution to mRWA, we see that the Sep25 cumulative total of $9.3 billion becomes $116.5 billion representing 26% of the cumulative mRWA of $445 billion.

For each institution this contribution varies from the lows of 14.6% for Citigroup and 18.3% for Bank of America to the highs of 28.5% for Wells Fargo and 50.3% for Goldman Sachs.

Each institutions stressed VaR contribution is higher than its VaR, as it should be, however Goldman Sachs showing by far the greatest need for capital in stressed conditions.

Specific Risk Add-Ons

These cover the specific risk of Debt, Equity and Securitisation; so rather than general market risk, specific risk of an issuer; which for debt instruments is a function of credit quality and residual maturity.

Again working out the contribution to mRWA, we find that the Specific Risk Add-on contribution to mRWA is 47% for the 6 banks as a whole and ranges from a low of 21.6% for Goldman Sachs to a high of 63% for JPMorgan.

Wow, that is surprisingly high relative to the general market risk captured under VaR and Stressed VaR.

Incremental Risk

The Incremental Risk Charge (IRC) estimates default and downgrade risk over a 1-year horizon and was introduced in Basel 2.5 after the Great Financial Crisis.

The Sep25 total for these 6 banks if much lower than a year earlier and the IRC contribution to overall mRWA is 5%, with a low of 2.8% for Wells Fargo and a high of 8.8% for Citigroup.

Comprehensive Risk Measure

This metric covers correlation trading portfolios.

The smallest values of all the metrics we have looked at and an overall contribution to mRWA of 1.9% as of Sep25.

De minimis and Other

Citigroup and Wells Fargo the most material, not from the De minimis positions component but from the Other Adjustments for additional capital requirements.

At 8.5% contribution to mRWA, it is higher than the name would suggest. This is entirely due to Citigroup and Wells Fargo with 27% and 16.7% contributions, much higher than the average of 3.3% for the other 4 banks.

Contributions

Ranking each of the component contributions to mRWA for the 6 U.S. Banks as a whole, we see:

• 47% – Specific Risk Add-Ons
• 26% – Stressed VaR
• 11% – Value-at-Risk
• 8.5% – De minimis and Other
• 5% – Incremental Risk
• 2% – Comprehensive Risk measure

It is surprising that the Specific Risk Add-Ons component is almost 50% of the Risk Weighted Assets for Market Risk (mRWA).

I did not expect this to be larger than General Market Risk, which is captured in Stressed VaR and Value-at-Risk. Presumably this is mostly/partly due to the crude nature of the standard method for specific risk add-ons based on grid lookups of weights of 8% and similar.

Similarly, the addition of Stressed VaR under Basel 2.5 (post Great Financial Crisis) further increased mRWA and while it makes great sense to use a stressed period for VaR, the crude addition of this to the existing Value-at-Risk metric introduces problematic double-counting of risk.

In an environment of rolling back financial regulation, it does seem that there would be scope to reduce the quantum of mRWA by 15% to 20% for these U.S. Banks.

In Summary

• Question: What are the components of risk weighted assets for market risk (mRWA)?
• Answer: The components are Value-at-Risk (VaR), Stressed VaR, Specific Risk Add-Ons, Incremental Risk, Comprehensive Risk and De Minimis/Other.

• Question: Where can I find data for mRWA and it’s VaR components for U.S. Banks?
• Answer: Our ActrixFT Apps provide access to this data, which is sourced from bank regulatory reports including FFIEC102.

• Question: What are the largest components of mRWA?
• Answer: While this depends on the characteristic’s of each institutions business, in most cases the Specific Risk Add-On is the largest component followed by Stressed VaR .

• Question: Which components were introduced after the Great Financial Crisis?
• Answer: Incremental Risk (covering default and downgrade risk) and Comprehensive Risk (covering correlation trading) were introduced after the GFC to address risk that was not previously adequately capitalised.