FRTB starts ‘tug of war’ between front and back offices

Risk USA: dealers face trade-off between accuracy of pricing models and level of capital charges

tug-of-war2

New trading book capital requirements for banks are stoking a tug of war between front- and back-office staff over how to align pricing and risk models that will need to work in tandem to operate the new regulatory framework.

The Basel Committee on Banking Supervision’s Fundamental Review of the Trading Book requires internal models used for calculating market risk capital requirements to include all risk factors a bank uses for pricing trades. The rules also give banks discretion in defining

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