Commentary and analysis of 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 today’s article I update the analysis on Market risk capital of U.S. Banks, which I wrote in November 2025.

The amount of market risk capital required by regulation for banks is key to their ability to absorb losses from market risk volatility. Given recent market volatility, this capital is as crucial as ever and insights into the level and changes of the metrics that constitute this capital are of great interest.

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.

Using ActrixFT Apps and the Bank Holding Company menu, we can see results for the 6 largest U.S. BHCs over the prior 5 quarters:

A cumulative $425 billion of mRWA at end Dec25, similar to $435 billion from a year earlier and down from $445 billion at end Sep25. JPMorgan Chase the largest with $92 billion down from $105 billion QoQ and up from $85 billion YoY.

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.

Goldman Sachs by far the highest with $1.2 billion, Wells Fargo the lowest with $200 million.

A cumulative $3.7 billion at end Dec25, which is multiplied by 12.5 to calculate the contribution to mRWA, which is an overall 10.8%, though it ranges from 4.9% for Wells Fargo to 17.4% 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.

Goldman Sachs by far the largest at $3.5 billion, Citigroup and Morgan Stanley the lowest at $945 million and $970 million respectively.

Again multiplying by 12.5 to get the contribution to mRWA, we see that Stressed VaR represents 26.5% of the cumulative mRWA of $425 billion as of end Dec25.

For each institution this contribution varies from the lows of 18.3% for JPMorgan Chase, 19.5% for Citigroup to the highs of 26% for Wells Fargo and 51.1% 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 market conditions.

Specific Risk Add-Ons

These cover the specific risk of Debt, Equity and Securitisation; so rather than general market risk the 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 47.6% for the 6 banks as a whole and ranges from a low of 22.5% for Goldman Sachs to a high of 62.8% for JPMorgan.

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 Dec25 total for these 6 banks is much lower than a year earlier and the IRC contribution to overall mRWA is 5.5%, with a low of 3% for Wells Fargo and a high of 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 2.1% as of Dec25.

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 7% contribution to mRWA, it is higher than the name would suggest. This is entirely due to Citigroup and Wells Fargo with 24.6% and 17% contributions, much higher than the average of 2% for the other 4 banks.

Contributions

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

• 48% – Specific Risk Add-Ons
• 26% – Stressed VaR
• 11% – Value-at-Risk
• 7% – De minimis and Other
• 6% – 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).

As I noted in my prior article, 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 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 simple addition of this to the existing Value-at-Risk metric introduces 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 10% to 20% for these U.S. Banks.

Adhoc Query

We recently added an Adhoc Query view to the BHC App for non-standard queries. For instance if I want to know about backtesting results and how many times a trading loss exceeded the Var estimate, I can just enter:

Which banks had MRRRS362 greater than 0 in the latest quarter?

Showing the response and data:

Just 3 banks, each with one occurrence of trading loss exceeding VaR (down from Q4 2004, when 8 banks had 1 occurrence and 1 bank had 2 occurrences).

And if I want a table to know the largest ratio of a daily trading loss to that trading day’s VaR measure in the latest calendar quarter for each bank, with a cut-off of 80%, I can simply ask for this to get:

Showing a high of 260% for Citizens and 195% for Bank of New York Mellon, while Goldman at 103% is just over the VaR and 3 other banks above 80%.

There is a lot more to show in Adhoc Query, but that is one for another day.

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: ActrixFT Apps provide access to this data, which is sourced from bank regulatory reports including FFIEC102.

• Question: How can I find which U.S. Banks had VaR back testing exceptions in the recent quarter?
• Answer: ActrixFT Apps have a new Adhoc Query view to answer this and other queries you have on VaR back testing.