Principal Risk refers to the potential for loss of the original investment amount, distinct from interest rate or market risks. It arises when the underlying asset's value decreases, leading to a situation where the investor may not recover the initial capital invested. This risk is particularly relevant in fixed-income securities, equities, and other investment vehicles. Effective management of principal risk involves careful selection of investments, diversification, and regular monitoring of market conditions to mitigate potential losses.

Basel scope:

• Pillar 1
• Pillar 2

Capital requirements:

Mitigated by Capital

Related Links:

•       The Basel framework
•                 BCBS 424 - Basel III: Finalising post-crisis reforms
•                 Basel Framework
•                 BCBS 347 - Revisions to the Standardised Approach for credit risk