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Triggered by weaknesses exposed in the 2007–08 global financial crisis, it targets insufficient capital for stressed scenarios and limited consistency and transparency in capital calculations. FRTB introduces clearer trading book vs. banking book boundaries, replaces Value at Risk under stress with expected shortfall, and refines illiquidity treatment through liquidity horizons while constraining internal model discretion.",{"@graph":69,"@context":123},[70,84,106],{"@type":71,"itemListElement":72},"BreadcrumbList",[73,77,79,82],{"item":74,"name":75,"@type":76,"position":8},"https://docshare.wps.com","Home","ListItem",{"item":78,"name":9,"@type":76,"position":14},"https://docshare.wps.com/document/",{"item":80,"name":40,"@type":76,"position":81},"https://docshare.wps.com/document/research-report/",3,{"item":83,"name":65,"@type":76,"position":19},"https://docshare.wps.com/document/fundamental-review-of-the-trading-book-an-overview/203327/",{"url":83,"name":65,"@type":85,"image":86,"author":91,"headline":65,"publisher":94,"fileFormat":97,"inLanguage":63,"description":67,"dateModified":98,"datePublished":99,"encodingFormat":97,"isAccessibleForFree":100,"interactionStatistic":101},"DigitalDocument",{"url":87,"@type":88,"width":89,"height":90},"https://docshare.wps.com/thumbnails/fundamental-review-of-the-trading-book-an-overview/203327.png","ImageObject",300,407,{"name":92,"@type":93},"Pentious","Person",{"url":74,"name":95,"@type":96},"DocShare","Organization","application/pdf","2026-10-29","2026-09-04",true,{"@type":102,"interactionType":103,"userInteractionCount":105},"InteractionCounter",{"@type":104},"ViewAction",14,{"@type":107,"mainEntity":108},"FAQPage",[109,115,119],{"name":110,"@type":111,"acceptedAnswer":112},"What is the main purpose of the Fundamental Review of the Trading Book (FRTB)?","Question",{"text":113,"@type":114},"FRTB sets minimum market risk capital requirements for banks’ trading portfolios and aims to fix weaknesses revealed during financial crises. It also improves risk sensitivity and accuracy in capital charge computation.","Answer",{"name":116,"@type":111,"acceptedAnswer":117},"How does FRTB address weaknesses in market risk measurement during stress?",{"text":118,"@type":114},"FRTB replaces Value at Risk with expected shortfall for stressed market scenarios, helping capture tail risk events. It also introduces liquidity horizons to better reflect market illiquidity risks.",{"name":120,"@type":111,"acceptedAnswer":121},"What key changes does FRTB introduce for the trading book and banking book boundary?",{"text":122,"@type":114},"FRTB applies more objective rules for instruments in the trading book and strictly prohibits switching instruments for regulatory arbitrage. It also reduces incentives on allowed movements between books.","https://schema.org",{"og:url":83,"og:type":125,"og:title":65,"og:site_name":95,"og:description":67},"article",{"robots":127,"canonical":83},"index,follow",{"doc_id":129,"site_id":62},203327,1788559790,{"code":4,"msg":5,"data":132},{"doc_id":129,"user_id":133,"nickname":92,"user_avatar":134,"doc_module":4,"category_id":39,"category_name":40,"doc_title":65,"doc_description":67,"doc_content":135,"file_id":136,"file_url":137,"file_type":138,"file_size":139,"view_count":105,"is_deleted":4,"is_public":8,"is_downloadable":8,"audit_status":8,"page_count":140,"language":141,"language_code":63,"site_id":62,"html_lang":63,"table_of_contents":142,"faqs":143,"seo_title":144,"seo_description":67,"update_tm":130,"read_time":41,"preview_page_count":4},1374404730887,"https://ap-avatar.wpscdn.com/davatar_6f874abed73319feea01a86fa6f0fab8","Fundamental review  \nof the trading book:An overview  \nJuly 2025  \nKPMG. Make the Difference.  \n2  \nFundamental review of the trading book: An overview  \nIntroduction  \nThe global financial crisis of 2007-08 revealed significant weaknesses in the market risk capital framework. Toachieve a more robust framework, the Basel Committee on Banking Supervision (BCBS) issued draftFundamental Review of the Trading Book reforms in 2012 thereby publishing the final standards in January20191. The fundamental review of the trading book (FRTB) is a comprehensive set of rules specifying theminimum capital requirements for market risk on banks trading portfolio. FRTB’s immediate objective is toaddress weaknesses in the market risk framework that became apparent during the financial crises such as:  \ninsufficient capitalisation for stressed market scenarios, lack of consistency and sufficient transparency of thecapital calculations across all financial institutions.  \n# 1.1. Overview of Fundamental Review of the Trading Book reforms\n\nFRTB reforms, part of Basel III regulations, werepublished by BCBS as a series of consultative papers(CP) from October 2013 with the final standardspublished in January 2019. It is a comprehensive effortto make the trading book framework further robust withthe objective to introduce a more risk sensitive andaccurate methodology forthe capital chargecomputation; establishing clearer rules to prevent banks  \nfrom exploiting inconsistencies between trading andbanking books; and to standardise the market riskframeworks across jurisdictions to improvecomparability and transparency. FRTB addresses theshortcomings in both the existing standardisedapproach and internal models approach, andspecifically revisiting the following areas:  \nThe boundary between the trading book and the banking book i.e. , assetsintended for active trading as opposed to assets expected to be held to maturity.This was important since majority of the losses were from the trading bookportfolio during the 2008 crisis  \nExpected shortfall replacing the Value at Risk as a measure of riskunder stress, ensuring banks capture tail risk events  \nThe risk of market illiquidity, by incorporating more liquidity horizons based on thespecific characteristic of underlying risk.  \nFRTB intends to remediate the design flaws in theexisting market risk framework in two key ways: first, byenhancing the assessment of risks associated withbanks’trading activities, and second, by reducingvariability in internal models approach outcomes byrestricting banks’discretion in applying their own  \nmodelling assumptions.  \nThis framework is designed to ensure that banksmaintain sufficient capital to absorb potential tradinglosses, including those arising in stressed marketconditions.  \n1. BCBS minimum requirement for market risk, https://www.bis.org/bcbs/publ/d457.pdf  \nFundamental review of the trading book: An overview  \n3  \nFRTB timeline: Key milestones  \n2012  \n2013  \n2014  \n\n| May 2012 BCBS   | Oct 2013 BCBS   | Dec 2014 BCBS   |\n| --- | --- | --- |\n| FRTB First CP   | FRTB Second CP   | FRTB Third CP   |\n\n2019  \n 2019   \n  \nJan 2019 HKMA issuescircular to align with BCBSFRTB rules  \nJan 2019 BCBSFRTB Revised Rules  \nJan 2016 BCBSFRTB rules finalised  \n2017  \nDec 2017 BCBSannouncement ongo-live date  \n2016  \n2019  \nJune 2019 EU EBA issuedCRR II with FRTB reportingrequirements  \n2021  \nSept 2021 MAS(Singapore) issued CP onFRTB requirements  \n2023  \nFeb 2023 Reserve Bank ofIndia (RBI) published the draftguidelines (Simplifiedstandardised approach)  \n2022  \nNov 2022 PRAissued draft rules forBasel 3.1  \n2023  \nJuly 2023 FED publishedthe proposed FRTB rules  \n2023  \nSept 2023 MAS (Singapore)issued Basel 3 capitalrequirements  \nOct 2021 EU EBA issuedCRR III with the FRTB capitalrequirements  \n2022  \n2021  \nJan 2022 BaselFRTB measurescome into force  \n2023  \nDec 2023 PRA issued a nearfinal version was for Basel  \n3.1 standards.  \n2025  \nJuly 2025 PRApublishes CP to seekfeedback o","cbCaiuDjn3fMB0ty","https://ap.wps.com/l/cbCaiuDjn3fMB0ty","pdf",1312982,12,"English","# Introduction\n## 1.1 Overview of Fundamental Review of the Trading Book reforms\n## FRTB timeline: Key milestones\n# 1.2 Key elements and changes","[{\"question\":\"What is the main purpose of the Fundamental Review of the Trading Book (FRTB)?\",\"answer\":\"FRTB sets minimum market risk capital requirements for banks’ trading portfolios and aims to fix weaknesses revealed during financial crises. It also improves risk sensitivity and accuracy in capital charge computation.\"},{\"question\":\"How does FRTB address weaknesses in market risk measurement during stress?\",\"answer\":\"FRTB replaces Value at Risk with expected shortfall for stressed market scenarios, helping capture tail risk events. It also introduces liquidity horizons to better reflect market illiquidity risks.\"},{\"question\":\"What key changes does FRTB introduce for the trading book and banking book boundary?\",\"answer\":\"FRTB applies more objective rules for instruments in the trading book and strictly prohibits switching instruments for regulatory arbitrage. It also reduces incentives on allowed movements between books.\"}]","Fundamental Review of the Trading Book - An Overview | PDF"]