FRTB: An Overview
What is the Fundamental Review of the Trading Book regulation?
There have been many in-depth articles written about the Fundamental Review of the Trading Book (FRTB) and its implications on capital requirements using the different calculation methods. This is not one of those articles. This article aims to give you a high-level overview of what FRTB is, which in turn will help enable you in your quest to learn in more about it.
Where does FRTB originate from?
On the back of the 1974 Herstatt bank collapse, the G10 countries came together to create a committee under the Banking of International Settlement (BIS) known as the Basel Committee on Banking Supervision (BCBS).
In 1988, BCBS published a set of standards, known as Basel I, which became banking regulations focusing mainly on credit risk. These regulations defined the minimum capital requirements for banks.
These regulations were then revised and extended in 2004 and were creatively named Basel II. They were introduced as the 3 Pillars. These 3 Pillars were referring to:
- Minimum Capital
- Supervisory review
- Market Discipline
