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Delays and high failure rates hit FRTB implementation 

June 6, 2017

Farah Khalique, Global Risk Regulator

The Fundamental Review of the Trading Book is a particularly challenging piece of text to implement, but banks trying to do so with the less capital-intensive Internal Model Approach are finding it particularly difficult as they face having to keep their models approved. Some are considering not bothering with it. 

Banks are inundated with new post-financial regulations, but there is one that stands out as particularly challenging: the Fundamental Review of the Trading Book (FRTB). The global financial crisis prompted financial regulators to inspect banks’ trading books, and they did not like what they saw.

“After the financial crisis, regulators were quite busy in filling the gaps they discovered. They were aware something needed to be done,” says Andreas Bohn, associate director in risk management at the Boston Consulting Group. 

Piecemeal measures were introduced, including Stressed Value-at-Risk – designed to measure potential losses during bad market conditions – but ultimately the decision was made to clean out banks’ trading books from top to bottom.

The Bank for International Settlements’ Basel Committee on Banking Supervision (BCBS) set about ensuring that banks are robust enough to survive volatile periods and ultimately avoid government bailouts. Read more

 
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