FRTB’s risk factor framework is more punitive than it seems
Regime’s constraints may mean risk factors drop in and out of modellability far more frequently than dealers think
Thomas Obitz is founder and director of RiskTransform, a London-based consultancy advising banks on regulatory change
Of all the contentious parts of the Basel Committee's new market risk framework, risk factor modellability is perhaps the most vexing. Dealers are already expecting capital add-ons for risk factors that can't be modelled to account for roughly a third of their market risk capital requirements in future. Our analysis suggests the constraints baked into the regime will mean it is
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