Basel IV – New required Market Risk capital calculation methodology – Fundamental Review of the Trading Book (FRTB)
Mark Dougherty, CPA
Chair of Board of Fintech SME Lender | Chief Risk Officer (CRO) | Senior Risk Expert | Board Advisor | Freelance Consultant | Chartered Professional Accountant (CPA) | NED | Globally Mobile | Basel IV/3.1 | ICAAP/ILAAP
Basel IV – New required Market Risk capital calculation methodology – Fundamental Review of the Trading Book (FRTB) - Starting 1 January 2023??????
Regulatory Backdrop - How did we get here?
Subsequent to Basel I’s issuance in 1988, there was a 1996 Amendment to Basel I in order to incorporate market risks.
After the 2008-2009 financial crisis, many banking supervisors were of the view that that the regulatory capital for market risk was not adequate to fully cover market risks. As a result, in July 2009 Basel 2.5 was issued as a revision to the market risk framework. Since then, many have thought that Basel 2.5 was deficient.
The result is Basel IV for Market Risk, which is also known as the Fundamental Review of the Trading Book (FRTB). It is intended to harmonize the treatment of market risk across national jurisdictions and is anticipated to generally result in higher global capital requirements. Given its size, the focus was firstly (and rightly) on Credit Risk and then the next piece in the Basel IV jigsaw was to address the myriad of changes in market risk. This is why it is called the “Fundamental Review”. There were many challenges in drafting FRTB. For example, there was unprecedented push back due to Non-Modellable Risk Factors (NMRF) as well as for P&L attribution as these tests were seen as unworkable and impossible for many desks to pass. While some believe that the FRTB revisions did not go far enough in some areas they are still viewed as much improved over Basel 2.5.
Basel IV Market Risk/FRTB is effective starting 1 January 2023.
We have launched three Basel IV training courses, including Credit Risk, Market Risk/FRTB and Operational Risk. If you are interested, please have a look. See: ??
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We also can provide in-person/on-site training at your business location. Anywhere in the world. Subject to any Covid 19 restrictions. ?
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By: Mark Dougherty, CPA, CMA (Chartered Professional Accountant, Certified Management Accountant)
London, UK – 13 July 2021
Reference: 2 – Linked-in Posting - Basel IV – MR/FRTB – MR Post # 1 - Section # 1 - No. 1
Senior Risk Management Expert | FRTB Specialist | CQF(Distinction),FRM, FCS, MBA,DipIFRS(ACCA) | ING Group | Ex-Oracle | Regulatory Change & Market Risk
3 年Thats a good one.#FRTB need lot of such initiatives to make it more clear as this is one of the most complex and at the same time one of the most important overhauling guidelines to identify and account for in the trading book of banks in terms of their market risk.
Senior Risk Expert | Executive & ExCo | Managing Director | Basel IV Market Risk FRTB, CVA, Credit Risk | Digital Transformation | Big 4 Ex EY | Board Advisor | Looking for senior risk, CRO or NED roles
3 年Nice one Mark Dougherty, CPA, CMA - I welcome anything that brings light on the important issues on #FRTB. Good luck my friend. Sid.