Professional Documents
Culture Documents
Speakers
Gurpreet Chhatwal
Kshitij Bhatia
April 2016
Strength in
Research &
Analytics
Best People to
Work With
Strong Parentage
& Governance
Rigorous &
Scalable
Processes
Awards &
Recognitions
Plug perceived gaps and reduce regulatory arbitrage between the Trading and the Banking Books
Current Trading Book rules created after the 2008 crisis aim to raise Trading Book capital
requirements
2014
2015
2016
2017/2018
Current framework had overlapping capital charges leading to double and triple counting of risks
Challenging modeling issues such as liquidity and constraining diversification not addressed
Standard Rule calculations were non-risk sensitive and highly conservative
Timeline and Current Status
2012
FRTB
Consultation
2014
2014/2015
2015/2016
Finalization
of rules
2016/2018
Calibration
Phase
(2-3yrs)
2019
Implementation
and Go Live
Standardized
Approach to
Market Risk
Description
Implications
Internal Model
Approach (IMA) to
Market Risk
Back-testing and
P&L Attributions
Securitised
Linear Risk
Charge
(Delta +
Vega)
Non-linear
Risk Charge
(Curvature)
Correlated
Trading
Portfolio
(CTP)
Non
Securitised
Exotic
Underlying's
Residual
Risks
Non-CTP
Market Risk
(Expected Short Fall based)
Qualitative
Standards
Control
Structure
Back-testing
Initial Monitoring
and Live testing by
supervisors
Stress
Testing
PnL
Attribution
Model Validation
External validation
SBA
Identification of risk factors
for risk classes
DATA
Data
MANAGEMENT
Maintaining consistency
across desks and
jurisdictions
Add-On
Identification of
instruments with
exotics and other
residual risks
Model
&&
MODELS
CALCULATIONS
Calculation
REPORTING
Reporting
Increased computational
requirements
Incorporation of
additional charge for
exotics and non-exotic
instruments
Reporting framework for aggregated capital charge across all desks (irrespective of IMA use)
Governance structure
Expected Shortfall
Risk factor classification
(MRFs Vs. NMRFs)
DATA
MANAGEMENT
SES Add-On
Hypothetical PL Full
revaluation
Risk-based PL
Hypothetical Vs. Riskbased database
MODELS &
CALCULATIONS
Historical simulation
based on full revaluation
method
Reporting
REPORTING
Stage II
Assessment
Stage I
Definition and Planning
Identification of all stakeholders who
would be part of the implementation
charter
10
Assessment Approaches
Approach 1
Approach 2
Implement final rules on a select few desks and scale them up slowly to larger set
Objective: To run eligibility rules, identify failings and strategize on filling the gaps
Pros: Current scenario and gap assessment at desk-level
Cons: Can become complex and tedious with every addition of a new desk to the analyses, can be
repetitive
11
Shared data platforms to largely solve the problem on NMRFs and thereby reducing
stressed capital add-on risk charge for desks
help
meet
regulators
12
New risk metrics, processes, governance and reporting requirements will change the
way banks trade
Way forward
Optimise infrastructure
13
www.crisil.com/gra