FRTB: Now that the ink has dried ...

The final version of the Basel BCBS ‘Minimum capital requirements for market risk’ directive (still generally referred to using the previous working title of the Fundamental Review of the Trading Book, or FRTB) was issued in January. The latest document included additional clarifications and a few­ – mostly welcome – changes. The revised go-live timeframe is now January 2020 (as opposed to the original date of January 2018, which was arguably bordering on the impossible given the scope of changes).

Understandably, to date most of the effort for banks tended to focus on the capital and business impact of FRTB. Consultations, quantitative impact studies (QISs) and internal projects revolved around the impact on firm and trading desk capital, using various Internal Model Approval and Revised Standard Approach scenarios, plus an assessment of Internal Model eligibility.

Although there is still uncertainty regarding the scale of capital impact, it falls within tight parameters, as neatly expressed in the recent ISDA FRTB QIS4 Refresh summary slide, which puts capital increase factor in the range of 2.4 (all desks on Standard Approach) and 1.5 (All desks successfully on IMA).