Book

Reforms known as the Fundamental Review of the Trading Book (FRTB) impact every bank with a trading book which in today’s world, is virtually every bank.

The FRTB, released by the Basel Committee on Banking Supervision (BCBS) in 2016, revised the minimum capital requirements for market risk to address the shortcomings of the Basel III market risk capital framework. The FRTB is an overarching view of how risks from banks’ trading activities and portfolios should be assessed and quantified through a credible relationship with capital requirements.

How banks plan for the effects, consequences and applications of FRTB is at the heart of Sanjay Sharma and John Beckwith’s new book, The FRTB: Concepts, Implications, and Implementation. The book explores the regulations and their consequences and takes a look at the principal components of the new guidelines, which include:

• A boundary between banking and trading books
• Replacing value-at-risk (VaR) with expected shortfall (ES) as a risk measure
• A revised sensitivity-based standardised approach (SA)
• A revised ES-based internal models approach (IMA) with differentiated liquidity horizons.

The FRTB: Impact, Implications, and Implementation is essential reading if you are a practitioner, a consultant, a regulator, an auditor, a ratings agency, an investor, a capital markets participant or a bank stakeholder.

ISBN: 978-1-78272-324-0
Publish date: 18 Jul 2018
Format: Paperback
Size: 230mm x 280mm

The BCBS’ principal objectives for the FRTB are to:

• Achieve consistency across jurisdictions
• Have its SA serve as a credible fall-back and a floor for the IMA
• Address existing weaknesses in the IMA – with the overarching motivation of not significantly increasing bank capital requirements.

This book guides the reader towards efficient FRTB implementation, capital measurement and deployment and, most importantly, effective risk management. The FRTB: Concepts, Implications, and Implementation provides a practical overview of the regulatory guidelines and their implications, and what needs to be achieved in terms of implementation.

1. Overview and Impact
2. The Boundary Between Trading and Banking Books Under FRTB
3. Moving from Value-at-risk to Expected Shortfall
4. The Standardised Approach
5. The Internal Models Approach
6. Default Risk Charge: Standardised and Internal Models Approaches
7. P&L Attribution and Backtesting
8. Regulating and Managing Non-modellable Risk Factors
9. Impact of a Capital Floor
10. Managing Regulatory Trading Desk Frameworks
11. Implementation of FRTB Framework
12. Model Frameworks and Management
13. Regulatory Responsibilities and Supervisory Framework
14. FRTB January 2017 FAQ Response and Review

Securities clearing, trading and liquidity continues to be impacted by evolving bank regulation across the globe, and FRTB is at the center of that. This book promises to be the most comprehensive manual for banks implementing FRTB and should be a great resource for buy- and sell-side market participants in all jurisdictions for years to come. My former colleagues, Sanjay and Jeb, are leading practitioners of market-risk management, from quantitative model frameworks and data alignment to governance and implementation planning. More importantly, both have operated through the practicalities, pressures and politics of project implementation within a large bank framework and bring that experience to bear in this book. They not only understand the practical implications and nuances of FRTB implementation but also know what created the need for it in the first place. They bring experience to this book that only comes from having operated through the 2008 global financial crisis.

Mark Standish, Former Co-CEO, RBC Capital Markets

The FRTB: Concepts, Implications and Implementation should become the ultimate reference and the road map to the risk community involved in a successful implementation of FRTB. It covers all the complex aspects of FRTB in a clear, comprehensive and accessible manner. It is also a detailed implementation guide with useful discussions of the pitfalls to avoid and answers to a broad range of technical issues.

Michel Crouhy, Head of Research & Development, Natixis

Although memories of the 2008 financial crisis are fading, many of the drivers and failures of that systemic event remain embedded in the global financial system. FRTB represents one of the most significant regulatory responses to the crisis from global bank supervisors. It also presents a fundamentally new way to think about measuring and managing trading risk. This comprehensive book on FRTB will be an authoritative reference for years to come.

Morten Friis, Member of Board of Directors, RBS

The FRTB is the most important change to bank capital requirements in a generation, yet its complexity makes it difficult for even the most sophisticated of practitioners to implement. Seemingly minor technical provisions can have significant implications for corporate organisation. The FRTB: Concepts, Implications and Implementation is an indispensable guide for any firm covered by this rule, whether it intends to implement the standard approach, or the more daunting internal models approach. It is technical enough for risk quants yet it lays out important decision points in ways that general managers can understand.

Adam Litke, Former Chief Risk Strategist and Head of Enterprise Risk Services, Bloomberg, L.P.

In this book Sanjay and John provide the industry with a comprehensive book that brings together all the various strands of this important regulatory initiative.

Gary Dunn, Managing Partner, Gary Dunn Consulting

This classroom-tested manifesto is the first in print to tackle Fundamental Review of the Trading Book (FRTB). The authors have been very kind to share their insights with our Masters students and now with the broader financial community. I know that our Masters students thoroughly enjoyed their review of this fundamental trade book (RFTB).

Peter Carr, Dept Chair of Finance and Risk Engineering, NYU Tandon School.