The “Fundamental Review of the Trading Book” (FRTB)1 introduces significant changes to the regulatory capital requirements for market risk. There are also implications for the internal risk management, Pillar 2 of the regulatory requirements. It is to be expected that essential elements will have to be used in Pillar 2 if an internal model approach (IMA) is used for Pillar 1. Accordingly, these elements will have to be adjusted. The new standardised approach (SA-TB) replicates a simple portfolio model and thus offers the opportunity to increase the consistency between Pillar 1 and Pillar 2 models for banks, including those without an internal Pillar 1 model.
This whitepaper elaborates on the adjustments to existing methods and processes which are necessary, or at least recommended, depending on the bank’s specific situation.
