FRTB standardised approach threatens commodity hedging
Basel language would force unnatural treatment of offsetting positions
Hedged commodity positions could incur outsized regulatory capital charges under the Basel Committee on Banking Supervision’s new market risk framework because of the problematic wording of a critical rule that governs how banks assess their commodity exposures.
The market risk rules – known as the Fundamental Review of the Trading Book (FRTB) – permit dealers to calculate their capital requirements using their own internal models or through a revised, standardised sensitivities-based approach
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