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Market Risk

FUNDAMENTAL REVIEW OF THE TRADING BOOK (FRTB)

Market risk is undergoing significant change because of the implementation of the new Basel “Revised Minimum Capital Requirements for Market Risk” published in January 2016. The transposition and implementation of these standards will require significant effort from banks over the next few years.

Avantage Reply has an excellent understanding of the new requirements and has hosted events on the topic with banks, industry bodies and regulators.

OFFERING

Avantage Reply can help banks by implementing the requirements covering business analysis, change management, modelling and validation. In particular we have strong capabilities in the following topics:

  • Operating model design – Support the identification of areas of change, define target processes and controls and formalise these through changes to policies and procedures.
  • Modelling:
    • Define, build, test, and validate new models.
    • Create prototypes to support decision making by senior management.
  • Systems – Define business requirements and functional specifications, identify the target infrastructure, and support IT with implementation.
  • Data – Embed FRTB in the bank’s data management framework; e.g. with new data specifications and dictionaries.
  • IMA application - Prepare and review documentation for the internal model approval request.

RELATED PUBLICATIONS

  • CRO Insights Journal - Special FRTB
  • FRTB IT Systems - briefing note

INTEREST RATE RISK IN THE BANKING BOOK (IRRBB)

Interest Rate Risk in the Banking Book (IRRBB) has been a key focus by regulators in Europe, highlighted by the Standards published in April 2016 by the Basel Committee, the subsequent proposals to transpose these requirements into the CRR, and the interest rate stress test exercise carried out by the ECB in early 2017. In 2018, the EBA will focus on this topic by amongst others reviewing the guidelines on this topic and creating new technical standards to ensure high standards of supervision on IRRBB.

OFFERING

Avantage Reply has helped banks with multiple dimensions of these requirements.

  • Change and remediation projects including re-developing new models, demonstrating non-materiality of certain elements, and developing statistical models focused on particular behavioural elements.
  • Although IRRBB projects have focused on the measurement of interest rate risk, to effectively do this a significant aspect is always the identification and correct understanding of the sources of interest rate risk.

RELATED PUBLICATION

  • EBA: LATEST DEVELOPMENTS REGARDING TECHNICAL ASPECTS OF IRRBB

RELATED CASE STUDIES

  • Case study - Extending the IRRBB economic capital framework beyond parallel shifts of the yield curve
  • Case study - Internal Audit of ICAAP, IRRBB and Market Risk
  • Case study - IRRBB and CSRBB

RELATED CONTENTS

18.12.2017 / Risk.net

Press Article

Basel delay does not ensure global FRTB consistency

The Basel Committee on Banking Supervision bowed to the inevitable on December 7, announcing a three-year postponement to the implementation of the FRTB, which had been due for January 2019. Lawmakers in the European Union had been thinking about delaying beyond that date, and the US transposition process has not even started. (Samuel Wilkes, Risk.Net)

26.01.2017 / Risk.net

Press Article

EC gold-plating of FRTB raises risk of global divergence

In the article, Ram Ananth, Senior Manager at Avantage Reply was interviewed on the interpretation of European rules for hard-to-model risks under new trading book capital rules

IRRBB

Briefing Note

EBA: latest developments regarding technical aspects of IRRBB

On the 31 October 2017, the EBA published a consultation paper. The objective is to consult on the revisions in the first quarter of 2018, targeting practical implementation by the end of 2018. This publication focuses on the implications of these latest developments for banks, highlighting areas that should be evaluated when addressing the requirements, considering all compliance operational issues.

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