Fundamental Review of the Trading Book (FRTB)

A regulatory landmark for banks

In January 2016 the Basel Committee on Banking Supervision published new minimum capital requirements for market risk as a result of its Fundamental Review of the Trading Book (FRTB). This marked the culmination of a five year project to overcome weaknesses in the market risk capital framework.

The key changes are:

  • revised internal models approach (IMA)
  • revised standardised approach (SA)
  • introduction of the Expected Shortfall (ES) measure
  • incorporation of the risk of market illiquidity
  • revised boundary of trading and banking book

These reforms mean big changes for banks with trading books. Although trading operations have been under scrutiny since the financial crisis of 2008, the FRTB represents an entirely new regime of market risk management. In some places it departs from principles that are decades old. Some of the most significant developments are in:

  • trading models and their validation
  • associated risk engines
  • the management and steering of trading desks

Our Services

Fintegral has extensive experience of the trading environment. It’s where some of our senior figures began their careers. We have successfully completed projects that are now at the heart of the new BCBS risk measurement framework:

  • model validation, including benchmarking and backtesting
  • model documentation
  • model risk assessment
  • assessment of VaR-engines and benchmarking with ES-engines at portfolio level

See also: Fintegral VaR Survey