FRTB internal models in fight for survival

Basel III capital floor leaves banks struggling to justify own-models approach, say risk experts

Ulrich Roth/Risk.net montage

The Basel III package of capital reforms imposes constraints on risk-weighted assets calculated using internal models. The rules are forcing large lenders to weigh up whether to abandon their own models in favour of the regulator-set standardised approaches.

The much-debated capital floor of 72.5% allows one model type – typically the advanced internal ratings-based approach (A-IRB) for credit risk – to consume the capital benefit across all risk types, removing the commercial case for any