Banks plan risk factor exclusion to avoid FRTB surcharge

Firms hope to leave out non-modellable risk factors deemed "immaterial"

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Model fine-tuning: firms are asking which risks they really need to quantify

Banks are considering excluding risk factors deemed immaterial from their risk models as a way to avoid a capital charge add-on for hard-to-model risks under the new trading book capital rules, but the strategy could be derailed by the will of regulators or by failing the internal models test.

"We don't believe we will get to the situation where non-modellable risk factors will be removed altogether, but I think, with appropriate representation that is aligned to our trading strategy, we can

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