SYSTEM UPGRADES AND PUNITIVE CAPITAL CHARGES THREATEN BUSINESS VIABILITY
Following the Fundamental Review of the Trading Book (FRTB), even banks on the standardised market risk approach have got work to do sourcing data. Those with existing waivers will need
to handle methodology changes and significant system upgrades, as well as having to cope with desk level regulatory approvals. Early indications show some business lines will be hit with more punitive capital requirements, threatening their continued viability at some banks.
It is important for financial institutions to plan ahead and evaluate how the FRTB will impact data acquisition, model development and validation, risk reporting and underlying processes. Those banks with the most robust infrastructure and a clear understanding of these impacts stand to gain a competitive advantage.
Parker Fitzgerald’s Ram Ananth says “desk-level approval will require more robust governance around model performance and reporting, while variable liquidity horizons will significantly increase system run times”.