What are FRTB requirements?
FRTB rules require banks to strengthen their existing market risk infrastructure and overall technology capabilities, with additional computational capacity to support calculations as required under new capital requirements.
Is FRTB part of Basel III?
The Fundamental Review of the Trading Book (FRTB) is a comprehensive suite of capital rules developed by the Basel Committee on Banking Supervision (BCBS) as part of Basel III, intended to be applied to banks’ wholesale trading activities.
When does the its apply to the FRTB?
These ITS introduce the first elements of the Fundamental Review of the Trading Book (FRTB) into the EU prudential framework by means of a reporting requirement. The ITS are expected to apply from September 2021.
How does a trading desk qualify for FRTB?
Profit And Loss (P&L) Attribution & Back-testing Under FRTB, banks can either use their own internal models or a standardized approach to calculate capital. For a desk to qualify for the internal models approach, it must pass two tests: a profit and loss attribution test and a back-test.
What is the expected shortfall of the FRTB?
To a limited extent, the inadequate capture of basis risk. FRTB proposes the abandonment of the 10-day VaR at 99% confidence in favor of the expected shortfall with a 97.5% confidence interval. The move is informed by the fact that the expected shortfall helps overcome some of the weaknesses identified in VaR.
How are the major currencies divided in FRTB?
Please note that the FRTB guidelines include the below table: For the major currencies, we must divide these Risk Weightings by the square root of 2 (see table to the right). The BCBS committee have defined the major currencies as: At the end of this step, we end up with a “Weighted Sensitivity”, for each vertex.