FRTB
Fundamental Review of the Trading Book
Definition
The Basel Committee's comprehensive reform of market risk capital requirements, replacing the previous standardised and internal models approaches with a revised framework. FRTB introduces the Standardised Approach (SA) and the Internal Models Approach (IMA) with more stringent model approval requirements, the expected shortfall risk measure, and desk-level P&L attribution tests.
Regulatory Context
FRTB is being implemented in the EU through CRR3 and in the UK through PRA rules. Implementation timelines have been extended multiple times. The reforms significantly increase the operational burden for firms using internal models and may result in higher market risk capital charges.