Loss of diversification benefits ‘will drive higher FRTB charges’

Independent study backs industry’s claims of significant rise in market risk capital requirements

Lack of diversity one way arrow

The loss of portfolio diversification benefits under new trading book capital rules will be a significant driver of increased market risk capital requirements, say the authors of research into the proposed framework. This could be contributing to banks’ reluctance to use internal models to calculate the new capital requirements.

“What we reveal is that diversification, which is considered the only free lunch in capital markets, just goes away with this framework,” says Carlos Manuel Pinheiro

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