A comprehensive overview of the FRTB, the changes required for internal models and the new standard rules approach.
The Fundamental Review of the Trading Book (FRTB), by BCBS, which began following the 2008 financial crisis and is due for implementation by end 2019 has indeed fundamentally overhauled the way banks are required to capitalise market risk on the Trading Book. Some of the more significant revisions to the internal model approach (IMA) include a move from "VaR + stressed VaR" to a single stressed expected shortfall measure (ES), with restrictions on diversification benefits and an allowance for less liquid risks; the incremental risk charge (IRC) replaced by its simpler predecessor IDRC but with equity exposures now included; and the abolition of the comprehensive risk measure (CRM). Also the standard rules calculations for market risk have been replaced by a new sensitivity based approach (SBA) which makes use of banks sensitivities to risk factors.
This course is intended for attendants that already are familiar with the new proposed regulations. It will provide a comprehensive overview and will discuss in detail technical issues that have been debated between regulators and the industry, outstanding issues and challenges banks face. This will include strengths and weaknesses of VaR versus ES; the modelling of liquidity; the restrictions on diversification; issues with back testing the new stressed ES metric; the use of p-values; the introduction of P+L attribution under FRTB, optimal allocation of capital and approaches to desk structures.
How you will benefit:
- An understanding of the rationale for the regulatory initiatives under FRTB and the implementation challenges
- Understand some of the weaknesses in the current proposals and the need for further regulatory change
- Understand implications of greater model permission uncertainty and ways to minimise uncertainty
- Understand the capital impacts of the new rules prescribed by regulators
- Consider ways to optimise allocation of capital across trading desks to mitigate the impact of higher capital requirements