Just 10 Banks Eye Internal Models for FRTB Capital Rules, Study Shows

A recent study indicates that a mere ten banks globally intend to seek regulatory approval for utilizing internal models in calculating capital requirements under the upcoming trading book rules. This finding offers significant insight into the decreasing reliance on internal models for capital calculations and the underlying reasons for this trend.

The FRTB Landscape

The Fundamental Review of the Trading Book (FRTB) is a set of global regulatory standards designed to reform the banking sector's approach to market risk capital requirements. It aims to provide a more robust and risk-sensitive framework compared to previous regulations.

Key Takeaways

• Only 10 banks worldwide are planning to apply for internal model approval under FRTB.
• The study highlights a declining trend in banks' use of internal models for capital requirements.
• The research provides further understanding of the factors contributing to this decline.

Reasons for Model Decline

While the specific reasons for this limited uptake are not detailed in the provided information, the trend suggests a potential shift in how banks approach market risk capital. Factors could include the complexity and cost of developing and validating FRTB-compliant internal models, or a strategic decision to rely on standardized approaches due to perceived benefits or reduced regulatory burden. The study, conducted by the International Swaps and Derivatives Association (ISDA) in collaboration with consultancy EY, sheds light on these evolving dynamics within the financial industry's regulatory environment.

Sources

• Study finds just 10 banks plan to apply for FRTB models, Risk.net.