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FRTB under Basel IV Series - Article 3 - What are the Goals of FRTB?

What are the Goals of FRTB?

This is the third in a series of postings by RiskTAE on FRTB under Basel IV.  

The overall goals of FRTB are as follows:

• To harmonize the treatment of market risk across national jurisdictions and define and standardize capital requirements for banks’ trading books by way of a revised Market Risk Framework and revised Capital Requirements for Market Risk.
• Avoid under-capitalized trading book exposure.
• Plug perceived gaps and reduce regulatory arbitrage between the Trading Book and Banking Book. (Regulatory arbitrage is a practice whereby firms capitalize on loopholes in regulatory systems in order to circumvent unfavourable regulation. For example, take an illiquid asset out of the Trading Book (hard to mark to market because it’s difficult to do a valuation) and move it to Banking Book (using historic costs). This results in a lower capital charge.)

The Trading Book includes all the assets that are held with intention of trading.  They are normally held for a short duration and positions are liquidated in the market. Trading Book assets include investment held under the ‘Held for Trading’ category. They are subjected to Market Risk and are marked to market for accounting purposes.

Conclusion

Basel IV and FRTB is the most wide-raging comprehensive reformation package especially in the context of data management challenges in the history of the Basel regulations and all-encompassing preparatory work will be required for all areas of the financial institution.

RiskTAE would be glad to discuss your requirements as we have a team of seasoned Risk professionals to deliver solutions.     

Do you require any further training, consultancy, or recruitment on FRTB and Basel IV?

RiskTAE can provide on-site training on premise anywhere in the world and can cover many topics across Risk, Governance and Compliance.   

Course outlines are available by emailing: education@risktae.com

For all other enquiries, including consulting and recruitment, please email us at: info@risktae.com

RiskTAE has also partnered with an international banking education firm that can provide Basel IV and FRTB Online Self Study courses.

Course outlines for the Self-Study courses are also available by emailing: info@risksexplained.com

Or, you can go directly to the web site: www.risksexplained.com

* - Basel IV is now part of the regular vernacular. Basel IV is not a single regulatory framework, but rather a collection of changing international banking standards. In fact, the Basel Committee views these reforms as simply completing the Basel III Accord and contests the use of the unapproved term ‘Basel IV’. The Basel Committee itself calls them simply "finalised reforms" and the UK Government has called them "Basel 3.1". Critics of the reform, in particular those from the banking industry, argue that Basel IV will most likely require a significant increase in capital and should be treated as a distinct round of reforms being introduced by the Bank for International Settlements (BIS) and its Basel Committee on Banking Supervision (BCBS).

By: Benn Pople (Managing Director, Talent, RiskTAE Limited) and Mark Dougherty (Managing Director, Advisory and Education, RiskTAE Limited)

London, UK – 31st  January 2023

Reference: 3 - FRTB Article/Post # 3 - RiskTAE - Topic - FRTB – Goals of FRTB

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