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Fundamental Review of the Trading Book

by Gary Dunn

Languages: English

Price (from): €2,000 / day

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About the trainer:

Gary now works as a consultant and trainer in bank risk and regulatory capital modeling but has an extensive track record as a practitioner having worked in the market, credit, operational and liquidity risk management. Gary has considerable experience with central counterparties, having sat on a number of CCP risk committees and carried out stress testing reviews. Over the years, Gary has worked both on the regulatory side (Bank of England, FSA and on Basel working groups) and for industry (HSBC, Morgan Stanley) toward shaping the new regulatory landscape.


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Fundamental Review of the Trading Book by Gary Dunn

About the training

#Regulatory initiatives   #Understand the implications   #Ways to optimization   #Understand the divergences

Course subtitle: A comprehensive overview of the proposed new minimum capital requirements for market risk, the changes required for internal models and the new standard rules approach. The course: The Fundamental Review of the Trading Book (FRTB), which began following the 2008 financial crisis, was ‘finalized’ by BCBS with the publication of paper D352 in January 2016. The EU Commission published a first revised draft of CRD and CRR in November 2016. The revised framework does indeed fundamentally overhaul the way banks are required to capitalize on market risk on the Trading Book and has implications for the management of risk on the banking book as well. Some of the more significant revisions to the internal model approach (IMA) include a move from ‘VaR + stressed VaR’ to a single stressed expected shortfall measure (ES), with restrictions on diversification benefits and a capital penalty for less liquid risks; the incremental risk charge (IRC) replaced by a version of its simpler predecessor the default risk charge (DRC) but with equity exposures now included; and the abolition of the comprehensive risk measure (CRM). Also, the standard rule's calculations for market risk have been replaced by a new sensitivity based approach (SBA) combined with a standardized default risk charge. Banks using internal models will also be required to compute the standardized charges, as a benchmark, and the standard rules charge may be used to create a floor to the capital requirements based on internal models. New rules are also proposed to restrict the movement of positions and the transfer of risk between the banking book and the trading book. Many issues remained outstanding however with the proposed framework and further work has been undertaken by the BCBS resulting in the publication of two further papers at the end of 2017 (d424) and in March 2018 (d436). A consultation paper was also issued by the EBA at the end of 2017. Implementation of the new rules is due by end 2022 according to the revised BCBS timetable although regulatory jurisdictions may not keep to this timeframe and the revised CRR proposes a phased introduction. This course will provide a comprehensive overview of the proposed new market risk regulations, with practical examples and exercises, and will discuss in detail technical issues that have been debated between regulators and the industry, outstanding issues and challenges banks face. It will also take a look at the draft revised CRD and CRR and the revisions proposed recently proposed in the latest BCBS and EBA publications.

Learning outcomes

Regulatory initiatives

An understanding of the rationale for the regulatory initiatives under FRTB and the implementation challenges

Weaknesses in the new proposals and the further regulatory changes proposed

Understand some of the weaknesses in the new proposals and the further regulatory changes proposed

Understand the divergences

Understand the divergences between BCBS proposals and EU proposed implementation

Greater model permission uncertainty

Understand the implications of greater model permission uncertainty and ways to minimize uncertainty

The capital impacts

Understand the capital impacts of the new rules prescribed by regulators

Optimize the allocation of capital

Consider ways to optimize the allocation of capital across trading desks to mitigate the impact of higher capital requirements


  • Overview

  • Trading Book/Banking book

  • Introduction to Internal Models Approach

  • Expected Shortfall implementation under FRTB

  • Model Validation Standards

  • Back testing VaR

  • P+L Attribution

  • The Default Risk Charge (DRC)

  • Standard Rules

  • Capitalisation

  • EU Implementation of FRTB

  • Role Play Exercise – Meet the Regulator

  • Stress Testing

  • Related Topics

Main benefits

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