The Fundamental Review of the Trading Book in the EU

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An Assessment of How the Sellside Business Model Could be Strategically Reorientated

This report explores the ways in which the Fundamental Review of the Trading Book (FRTB) proposals would impact the ability of EU-based banks to continue operating principal-centric, front-office business and trading models for all relevant asset classes.

The regulations require banks to:

  • separate banking book functions from trading book functions so that one book is no longer able to fund the capital needs of the other;
  • establish global standards for the calculation of risk using either the Internal Models Approach (IMA) or the Standardised Approach (SA); and
  • recalibrates liquidity horizons for a range of asset classes.

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GreySpark believes that these requirements will force banks to review their business and operational models in order to strategically decide how to reorient the affected lines of business or to close them outright.

The implementation and compliance process associated with the FRTB will be lengthy for many banks, and the resulting long-term re-evaluations of affected business lines will also be both lengthy and complicated as the responsibility of risk assessment and management within the financial markets-facing functions of each bank will fall under the purview of individual trading desks.

In anticipation of the operational and technical challenges associated with the FRTB for banks, GreySpark has launched a new range of consulting services that are specifically tailored to assist the sellside with implementing and complying with the regulations across all affected areas of the business.  GreySpark believes that approaching compliance proactively with a methodology favouring the use of precise, granular data will help the sellside get ahead of their compliance requirements.

Published on: 12 Apr, 2017

The Fundamental Review of the Trading Book in the EU – Table of Contents

  • 1.0 Laying the Groundwork for the Fundamental Review of the Trading Book (FRTB)
    • 1.1 From Basel II to Basel 2.5 to Basel III
    • 1.2 The FRTB: An Eventual Necessity
  • 2.0 The FRTB & EU-based Bank Business Models
    • 2.1 The Separation of the Banking Book from the Trading Book
    • 2.2 The Revised Standardised Approach vs. the Revised Internal Models Approach
    • 2.3 The Data Challenges Associated with the Internal Models Approach
    • 2.4 The FRTB’s Recalibration & Implementation of Liquidity Horizons
  • 3.0 Estimating the Impact of the FRTB on the Profitability of Individual Trading Desks
    • 3.1 Calculating the Impact of the FRTB’s New Capital Charges
  • 4.0 Looking Beyond the Banks: Opportunities for EU-based Non-bank Liquidity Providers
    • 4.1 Assessing the Willingness of Non-bank Liquidity Providers to Assume the Mantle of Risk-taking from Banks
  • 5.0 Appendices
  • 5.1 Glossary of Terms
  • 5.2 Table of Figures