FRTB capital quirk for sovereign bonds bewilders banks
EU treatment of govvies under internal models is worse than standardised approaches
This is the second of two articles on the implementation of FRTB in the European Union. For the first article, on non-modellable risk factors, please see here.
There was a time when the pinnacle of bank capital management was having internal models that could accurately estimate the risks arising from portfolios. Those models are supposed to be more sophisticated, and therefore offer banks the chance to optimise capital requirements compared with regulator-set standardised approaches.
But a
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