Basel Framework International regulatory standards for banks |
---|
Background |
Pillar 1: Regulatory capital |
Pillar 2: Supervisory review |
Pillar 3: Market disclosure |
Business and Economics Portal |
The Fundamental Review of the Trading Book (FRTB), is a set of proposals by the Basel Committee on Banking Supervision for a new market risk-related capital requirement for banks. [1] [2]
The reform, which is part of Basel III, is one of the initiatives taken to strengthen the financial system, noting that the previous proposals ( Basel II) did not prevent the financial crisis of 2007–2008. [3] [4] It was first published as a Consultative Document in October 2013. [5] Following feedback received on the consultative document, an initial proposal was published in January 2016, [6] which was revised in January 2019. [7]
The FRTB revisions address deficiencies relating to the existing [8] Standardised approach and Internal models approach [9] and particularly revisit the following:
FRTB additionally sets a "higher bar" for banks to use their own, internal models for calculating capital, as opposed to the standardised approach. [2] Here, for a desk to qualify for the internal models approach, its model must pass two tests: a profit and loss attribution test and a backtest. [12]
The calculations incorporate the above outlined enhancements, as follows. As for other Basel frameworks, the Standardised approach is directly implementable, but, at the same time, carries more capital; whereas the Internal models approach, by contrast, carries less capital, but the modelling is more complex.
Basel Framework International regulatory standards for banks |
---|
Background |
Pillar 1: Regulatory capital |
Pillar 2: Supervisory review |
Pillar 3: Market disclosure |
Business and Economics Portal |
The Fundamental Review of the Trading Book (FRTB), is a set of proposals by the Basel Committee on Banking Supervision for a new market risk-related capital requirement for banks. [1] [2]
The reform, which is part of Basel III, is one of the initiatives taken to strengthen the financial system, noting that the previous proposals ( Basel II) did not prevent the financial crisis of 2007–2008. [3] [4] It was first published as a Consultative Document in October 2013. [5] Following feedback received on the consultative document, an initial proposal was published in January 2016, [6] which was revised in January 2019. [7]
The FRTB revisions address deficiencies relating to the existing [8] Standardised approach and Internal models approach [9] and particularly revisit the following:
FRTB additionally sets a "higher bar" for banks to use their own, internal models for calculating capital, as opposed to the standardised approach. [2] Here, for a desk to qualify for the internal models approach, its model must pass two tests: a profit and loss attribution test and a backtest. [12]
The calculations incorporate the above outlined enhancements, as follows. As for other Basel frameworks, the Standardised approach is directly implementable, but, at the same time, carries more capital; whereas the Internal models approach, by contrast, carries less capital, but the modelling is more complex.