RBC25 - Boundary between the banking book and the trading bookIn my current role, I look after important consulting engagements for a number of strategic clients cutting across various risk and regulatory issues. However, given my prior background I tend to specially focus on regulations in Market Risk and Stress Testing projects. The clients I work with range from large global banks with substantial multi-asset class exposures and sizeable trading portfolios, to more localized banks with limited trading exposure. Before I got into Risk, which as is the case for many of us, happened only post-crisis, I was involved on the derivatives trading support side of the business, managing projects in various areas including structuring, product control, and derivatives technology. We are looking forward to you presenting at the Risk EMEA Summit where you will be focusing on the trading book and banking book. Can you give us a very brief overview of the trading book and banking book revisions within the revised Basel Market risk framework?
FRTB - Trading & Banking Book
The BIS hosts nine international organisations engaged in standard setting and the pursuit of financial stability through the Basel Process. A trading book consists of all instruments that meet the specifications for trading book instruments set out in RBC All other instruments must be included in the banking book. Instruments comprise financial instruments, foreign exchange FX , and commodities. A financial instrument is any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.
There is often confusion about the different nature of the Interest Rate Risk (IRR) in the banking book versus the trading book and what needs to be measured. The Value-at-Risk (VaR) for assets in the trading book is measured on a day time horizon under Basel II.
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