EU banks balk at new market risk models back test

EBA proposals introduce additional expected shortfall back test for market capital risk models under FRTB

Europlaza tower in Paris is home to the European Banking Authority
Europlaza Tower in Paris, home to the European Banking Authority
Photo: 11h45_Paris La Defense

Banks in the European Union are critical of proposals for a new model validation test as part of market risk capital rule revisions. Four bank and industry sources say an additional test from the European Banking Authority goes beyond internationally agreed standards. What’s more, they fear, the new requirement could discourage banks from using internal models to measure market risk in the trading book.

“It becomes challenging for market participants if, during the implementation process, new

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