Knowledge (XXG)

Fundamental Review of the Trading Book

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528:(i.e. as opposed to VaR) at a 97.5% quantile, with differentiated “liquidity horizons” for five categories of instruments (standard 10 days previously); the expected loss is calibrated to the one-year period of the most severe stress since 2005. For non-modellable risk factors, those where appropriate data does not exist, 486:
As for other Basel frameworks, the Standardised Approach is directly implementable, but, at the same time, carries more capital; whereas the Internal Models approach, by contrast, carries less capital, but the modelling is more complex. More specifically, the calculations incorporate the above
507:. A capital charge is calculated here for three correlation scenarios, multiplying the sensitivities by supervisory risk-weights, and then applying rules for trade-by-trade and then overall aggregation, with the largest finally used. (ii) A default risk charge, capturing any 437:, usually customer loans, and deposits from retail and corporate customers; important since the "vast majority of losses were from trading books during the 2008 crisis" 187: 495:, the mimimum capital requirement is the sum of three components: (i) Sensitivities-based capital, for seven risk classes, which reflects linear risks via their 466:
FRTB additionally sets a "higher bar" for banks to use their own, internal models for calculating capital, as opposed to the standardised approach. Here, for a
401:
in October 2013. Following feedback received on the consultative document, an initial proposal was published in January 2016, which was revised in January 2019.
165: 386: 532:
are used as a proxy. Capital requirements are calculated on the level of trading desks and are aggregated for the whole trading book. To this is appended a
372: 330: 70: 248: 417: 352: 214: 30: 714: 685: 627: 556: 411: 209: 160: 854: 394: 872: 809: 781: 797: 323: 306: 253: 897: 562: 221: 887: 316: 243: 197: 60: 55: 825: 577: 529: 133: 769: 892: 508: 504: 360: 182: 128: 846: 644:"Fundamental review of the trading book: A revised market risk framework - consultative document" 525: 441: 434: 868: 850: 710: 681: 623: 500: 496: 460: 271: 238: 864: 112: 99: 94: 757: 276: 170: 148: 143: 511:. (iii) A residual risk add-on, appended for other market risks not captured, such as 881: 475: 471: 445: 35: 533: 512: 467: 449: 430: 426: 175: 103: 433:": i.e. assets intended for active trading; as opposed to assets expected to be 376: 356: 297: 204: 155: 614: 470:
to qualify for the internal models approach, its model must pass two tests: a
281: 453: 382: 138: 50: 701: 672: 390: 45: 729: 643: 90: 40: 743: 731:
International Convergence of Capital Measurement and Capital Standards
745:
An internal model-based approach to market risk capital requirements
616:
Explanatory note on the minimum capital requirements for market risk
409:
The FRTB revisions address deficiencies relating to the existing
108: 821: 793: 231: 226: 843:
Basel III Modelling: Implementation, Impact and Implications
592: 826:
Basel IV: Revised Internal Models Approach for Market Risk
595:. The Basel Committee on Banking Supervision. 28 June 2011 758:"Boundary between the trading book and the banking book" 798:
Basel IV: Revised Standardised Approach for Market Risk
503:(for options) risk factors, and non-linear risks via 861:
The FRTB: Concepts, Implications and Implementation
524:approach, the mimimum capital requirement uses 820:For an overview of the calculations, see, e.g., 792:For an overview of the calculations, see, e.g., 709:. Basel Committee on Banking Supervision. 2019. 680:. Basel Committee on Banking Supervision. 2016. 622:. Basel Committee on Banking Supervision. 2019. 385:, is one of the initiatives taken to strengthen 452:under stress; thus ensuring that banks capture 760:, Basel Committee on Banking Supervision, 2020 748:. Basel Committee on Banking Supervision, 1995 734:. Basel Committee on Banking Supervision, 2006 579:Fundamental Review of the Trading Book (FRTB) 324: 8: 703:Minimum capital requirements for market risk 674:Minimum capital requirements for market risk 558:Minimum Capital Requirements for Market-Risk 22:International regulatory standards for banks 841:Ioannis Akkizidis, Lampros Kalyvas (2018). 573: 571: 331: 317: 15: 373:Basel III: Finalising post-crisis reforms 421:and particularly revisit the following: 546: 289: 263: 120: 82: 18: 389:, noting that the previous proposals ( 353:Basel Committee on Banking Supervision 345:Fundamental Review of the Trading Book 31:Basel Committee on Banking Supervision 859:Sanjay Sharma, John Beckwith (2018). 552: 550: 7: 487:outlined enhancements, as follows. 377:Market risk § Regulatory views 482:Calculation of capital requirements 14: 810:MAR 30: Internal models approach 593:"The Basel Committee - overview" 351:), is a set of proposals by the 397:. It was first published as a 1: 782:MAR 20: Standardised approach 395:financial crisis of 2007–2008 381:The reform, which is part of 307:Business and Economics Portal 264:Pillar 2: Supervisory review 121:Pillar 1: Regulatory capital 563:International Monetary Fund 472:profit and loss attribution 290:Pillar 3: Market disclosure 914: 425:The boundary between the " 370: 418:Internal models approach 393:) did not prevent the 515:and behavioural risk. 493:Standardised Approach 412:Standardised approach 399:Consultative Document 371:Further information: 509:jump-to-default risk 387:the financial system 898:Capital requirement 361:capital requirement 129:Capital requirement 847:Palgrave Macmillan 526:expected shortfall 461:market illiquidity 442:expected shortfall 716:978-92-9259-237-0 687:978-92-9197-416-0 629:978-92-9259-236-3 341: 340: 23: 905: 829: 818: 812: 807: 801: 790: 784: 779: 773: 767: 761: 755: 749: 741: 735: 727: 721: 720: 708: 698: 692: 691: 679: 669: 663: 662: 660: 658: 648: 640: 634: 633: 621: 611: 605: 604: 602: 600: 589: 583: 575: 566: 554: 530:stress scenarios 435:held to maturity 333: 326: 319: 272:Economic capital 239:Operational risk 21: 19:Basel Framework 16: 913: 912: 908: 907: 906: 904: 903: 902: 888:Bank regulation 878: 877: 838: 833: 832: 819: 815: 808: 804: 791: 787: 780: 776: 772:, bankpedia.org 768: 764: 756: 752: 742: 738: 728: 724: 717: 706: 700: 699: 695: 688: 677: 671: 670: 666: 656: 654: 646: 642: 641: 637: 630: 619: 613: 612: 608: 598: 596: 591: 590: 586: 576: 569: 555: 548: 543: 522:Internal Models 484: 450:measure of risk 407: 379: 369: 337: 113:Risk management 100:Monetary policy 20: 12: 11: 5: 911: 909: 901: 900: 895: 890: 880: 879: 876: 875: 857: 855:978-3319704241 837: 834: 831: 830: 813: 802: 785: 774: 762: 750: 736: 722: 715: 693: 686: 664: 635: 628: 606: 584: 567: 545: 544: 542: 539: 538: 537: 517: 516: 483: 480: 464: 463: 457: 438: 406: 403: 368: 365: 339: 338: 336: 335: 328: 321: 313: 310: 309: 303: 302: 301: 300: 292: 291: 287: 286: 285: 284: 279: 277:Liquidity risk 274: 266: 265: 261: 260: 259: 258: 257: 256: 251: 246: 236: 235: 234: 229: 219: 218: 217: 212: 202: 201: 200: 195: 194: 193: 190: 180: 179: 178: 173: 163: 153: 152: 151: 146: 141: 139:Leverage ratio 136: 123: 122: 118: 117: 116: 115: 106: 97: 85: 84: 80: 79: 78: 77: 76: 75: 74: 73: 68: 63: 58: 48: 43: 33: 25: 24: 13: 10: 9: 6: 4: 3: 2: 910: 899: 896: 894: 891: 889: 886: 885: 883: 874: 873:9781782723240 870: 866: 862: 858: 856: 852: 848: 844: 840: 839: 835: 827: 823: 817: 814: 811: 806: 803: 799: 795: 789: 786: 783: 778: 775: 771: 766: 763: 759: 754: 751: 747: 746: 740: 737: 733: 732: 726: 723: 718: 712: 705: 704: 697: 694: 689: 683: 676: 675: 668: 665: 652: 645: 639: 636: 631: 625: 618: 617: 610: 607: 594: 588: 585: 581: 580: 574: 572: 568: 564: 560: 559: 553: 551: 547: 540: 535: 531: 527: 523: 519: 518: 514: 510: 506: 502: 498: 494: 490: 489: 488: 481: 479: 477: 473: 469: 462: 458: 455: 451: 447: 446:value at risk 443: 439: 436: 432: 428: 424: 423: 422: 420: 419: 414: 413: 404: 402: 400: 396: 392: 388: 384: 378: 374: 366: 364: 362: 358: 354: 350: 346: 334: 329: 327: 322: 320: 315: 314: 312: 311: 308: 305: 304: 299: 296: 295: 294: 293: 288: 283: 280: 278: 275: 273: 270: 269: 268: 267: 262: 255: 252: 250: 247: 245: 242: 241: 240: 237: 233: 230: 228: 225: 224: 223: 220: 216: 213: 211: 208: 207: 206: 203: 199: 196: 191: 189: 186: 185: 184: 181: 177: 174: 172: 169: 168: 167: 164: 162: 159: 158: 157: 154: 150: 147: 145: 142: 140: 137: 135: 134:Capital ratio 132: 131: 130: 127: 126: 125: 124: 119: 114: 110: 107: 105: 101: 98: 96: 92: 89: 88: 87: 86: 81: 72: 69: 67: 64: 62: 59: 57: 54: 53: 52: 49: 47: 44: 42: 39: 38: 37: 36:Basel Accords 34: 32: 29: 28: 27: 26: 17: 860: 842: 836:Bibliography 816: 805: 788: 777: 770:Banking book 765: 753: 744: 739: 730: 725: 702: 696: 673: 667: 655:. Retrieved 650: 638: 615: 609: 597:. Retrieved 587: 578: 557: 534:default risk 521: 492: 485: 465: 459:The risk of 431:banking book 427:trading book 416: 410: 408: 405:Key features 398: 380: 348: 344: 342: 249:Standardized 210:Standardized 104:Central bank 65: 893:Market risk 651:www.bis.org 474:test and a 444:instead of 440:The use of 429:" and the " 363:for banks. 357:market risk 205:Market risk 156:Credit risk 882:Categories 865:Risk Books 582:. risk.net 541:References 520:Under the 491:Under the 367:Background 355:for a new 298:Disclosure 282:Legal risk 95:Regulation 83:Background 828:, pwc.com 800:, pwc.com 505:curvature 454:tail risk 383:Basel III 359:-related 51:Basel III 824:(2016). 796:(2016). 657:17 April 513:gap risk 476:backtest 391:Basel II 46:Basel II 599:5 April 536:charge. 222:CVA vol 91:Banking 71:Endgame 41:Basel I 871:  853:  713:  684:  626:  565:, 2016 456:events 232:SA-CVA 227:BA-CVA 188:SA-CCR 149:Tier 2 144:Tier 1 707:(PDF) 678:(PDF) 653:. BIS 647:(PDF) 620:(PDF) 497:delta 448:as a 244:Basic 176:A-IRB 171:F-IRB 161:SA-CR 869:ISBN 851:ISBN 711:ISBN 682:ISBN 659:2022 624:ISBN 601:2019 501:vega 499:and 468:desk 415:and 375:and 349:FRTB 343:The 109:Risk 66:FRTB 61:NSFR 867:. 822:PwC 794:PwC 254:AMA 215:IMA 198:CCF 192:IMM 183:EAD 166:IRB 56:LCR 884:: 863:. 849:. 845:. 649:. 570:^ 561:. 549:^ 478:. 111:/ 102:/ 93:/ 719:. 690:. 661:. 632:. 603:. 347:( 332:e 325:t 318:v

Index

Basel Committee on Banking Supervision
Basel Accords
Basel I
Basel II
Basel III
LCR
NSFR
FRTB
Endgame
Banking
Regulation
Monetary policy
Central bank
Risk
Risk management
Capital requirement
Capital ratio
Leverage ratio
Tier 1
Tier 2
Credit risk
SA-CR
IRB
F-IRB
A-IRB
EAD
SA-CCR
CCF
Market risk
Standardized

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