Global Fragmentation Looms in FRTB Data Pooling Stand-Off
The upcoming FRTB market risk framework allows financial firms to take different approaches to non-modelable risk factors: either capitalize risk factors that lack observable pricing in-house, or use a vendor-run data pooling utility. But, as Dan DeFrancesco reports, tier-two regional banks with valuable local expertise and data are key to these pools’ success—and are reluctant to play ball.
Under the Fundamental Review of the Trading Book (FRTB) regulation, banks opting to use an own-models approach to calculating market risk capital requirements will need vast amounts of historical data on the markets they trade for their model inputs. Where risk factors are deemed non-modelable—because they trade infrequently, or cannot be traded—banks face punitive add-ons to their capital requirements. Smaller markets, where liquidity can be thin or patchy, are likely to be responsible for the
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