FVA hedge omission from FRTB set to cause headaches
Lack of carve-out for market risk hedges could create hedging issues, experts say
The Fundamental Review of the Trading Book (FRTB) introduces significant technical and operational challenges for banks on the path to compliance.
Approval for the internal model approach (IMA) depends on passing back-testing requirements and the
profit-and-loss attribution (PLA) test. If banks are unable to pass this test, they must use the standardised approach (SA), which usually results in higher capital requirements. However, the tests are difficult to pass and, even when desks do qualify for the IMA, some risk factors may be deemed non-modellable (NMRFs), resulting in capital add-ons. Banks therefore need to source sufficient transaction data to prove that risk factors can be modelled adequately, which can be very costly. There is a plethora of modelling and data tools and strategies to pass the PLA tests and reduce the number of NMRFs but, ultimately, the capital savings might not justify the significant investment in data and infrastructure.
Many data and infrastructure challenges have already been resolved for the SA or are being alleviated, however the IMA is likely to remain a challenging area in the coming years. Vendors are positioning themselves to help banks compare the capital requirements from both methodologies. But it seems many banks are aiming to implement the SA first and leave decisions about applying for internal model approval applications until they have built up their capabilities.
FRTB implementation
Spotlight 2023
Investing in operational readiness to optimise capital utilisation
A panel of industry experts discusses the implementation of FRTB, the burden of investment into data and infrastructure for FRTB compliance, the considerations for banks in using the standardised approach and the internal model approach, and how vendors are adapting solutions to weigh up the capital efficiencies of both, as well as strategies and tools for profit-and-loss attribution and risk factor eligibility tests
Sponsored Q&A
Market
risk hedges
Determining approaches to FRTB
Weighing up the capital efficiencies
Leveraging compliance: the looming challenges of the post-FRTB paradigm
Sponsored feature
For enquires and information regarding Risk.net special reports, contact:
Antony Chambers
Publisher
+44 20 7316 9683
antony.chambers@infopro-digital.com
FRTB
implementation
Shifting timetable and rule tweaks that could alter incentives dampen appetite for internal models
‘Nightmare’ of uncertainty plagues FRTB model applications
FRTB implementation
Sponsored
Q&A
The deferral of Basel III implementation in response to the Covid-19 pandemic has ended. Within the next two years, Fundamental Review of the Trading Book (FRTB) guidelines will be implemented across a wide section of the global financial industry and will introduce a mountain of complexity to risk management standards and practices. Roger Coroas, head of business development, North America at ActiveViam, describes his vision for the post-FRTB paradigm
Leveraging compliance: the looming challenges of the post-FRTB paradigm
Sponsored
feature
Lack of carve-out for market risk hedges could create hedging issues, experts say
FVA hedge omission from FRTB set to cause headaches
Market risk hedges
Drawbacks mean even fewer model approval applications planned than past ECB survey suggested
Banks turn away from FRTB internal models in Europe
Internal model approval
Shifting timetable and rule tweaks that could alter incentives dampen appetite for internal models
‘Nightmare’ of uncertainty plagues FRTB model applications
FRTB implementation
The deferral of Basel III implementation in response to the Covid-19 pandemic has ended. Within the next two years, Fundamental Review of the Trading Book (FRTB) guidelines will be implemented across a wide section of the global financial industry and will introduce a mountain of complexity to risk management standards and practices. Roger Coroas, head of business development, North America at ActiveViam, describes his vision for the post-FRTB paradigm
Leveraging compliance: the looming challenges of the post-FRTB paradigm
Banks turn away from FRTB internal models in Europe
Internal model approval
‘Nightmare’ of uncertainty plagues FRTB model applications
FRTB implementation
For enquires and information regarding Risk.net special reports, contact:
Antony Chambers
Publisher
+44 20 7316 9683
antony.chambers@infopro-digital.com
Spotlight 2023
Spotlight 2023
Drawbacks mean even fewer model approval applications planned than past ECB survey suggested
Banks turn away from FRTB internal models in Europe
Internal model approval
FVA hedge omission from FRTB set to cause headaches
Determining
approaches to FRTB
Weighing up the
capital efficiencies
Institutions bemoan need for parallel framework to measure portfolios’ sensitivities to market moves
Banks look back in anger as FRTB revives 1990s risk test
Sensitivities calculations
Recent US bank failures could jeopardise planned January 2025 start date
for Basel III
US falls behind in race to match Europe’s FRTB launch date
US implementation
Recent US bank failures could jeopardise planned January 2025 start date for Basel III
US falls behind in race to match Europe’s FRTB launch date
US implementation
Institutions bemoan need for parallel framework to measure portfolios’ sensitivities to market moves
Banks look back in anger as FRTB revives 1990s risk test
Sensitivities calculations
US falls behind in race to match Europe’s FRTB launch date
US implementation
Banks look back in anger as FRTB revives 1990s risk test
Sensitivities calculations
Recent US bank defaults have raised new questions over US FRTB implementation. But what impact would that have? Colleen Cosgrove of ActiveViam discusses the importance of FRTB, the implementation challenges ahead and how technology can help in the process
Easing the pressure of FRTB implementation
Sponsored
video
Sponsored
Q&A
Q&A: Easing the pressure of FRTB implementation
Recent US bank defaults have raised new questions over US FRTB implementation. But what impact would that have? Colleen Cosgrove of ActiveViam discusses the importance of FRTB, the implementation challenges ahead and how technology can help in the process
Easing the pressure of FRTB implementation
Sponsored
video
Sponsored video