Libor reform threatens risk modelling under FRTB

Dearth of liquid products and historic data threatens banks with capital hit under new market risk rules

Rule-makers responsible for two major global reforms to the derivatives market – an overhaul of financial benchmarks and a new market risk rulebook – are based in the same building in Basel, Swizerland.

Not that you would know it.

Dissonance between these two initiatives is threatening to undermine banks’ efforts to model risk factors and may ultimately result in sizable capital hikes.

As the phase-out of discredited benchmark Libor gathers pace, a process that started in 2013 at the behest

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