The strange effect of US clampdown on FRTB models
Ban on internal models for trading book default risk could provide some banks with unexpected capital relief
The cull of credit risk models continues. Now, US banks are discovering that the purge is spreading from loan book to trading book.
Embedded in the market risk framework is a form of credit risk assessment that banks use to calculate losses from potential defaults by the issuers of securities held in the trading book. Proposed rules due to come into force in 2025 will prevent banks from using their own models to determine these losses. Instead, they will have to use a regulator-defined
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