basel-rwa-market

CORE PRINCIPLE

Market risk capital under FRTB replaces the pre-2016 VaR-based framework with a risk-sensitive approach that distinguishes between the Standardised Approach (SA) and the Internal Models Approach (IMA). The SA is the default and fallback; IMA requires desk-level regulatory approval including P&L attribution and backtesting.

FRTB applies to all instruments in the regulatory trading book. The trading book boundary is defined by strict criteria (intent to trade, ability to hedge, daily fair-value accounting) -- not by the bank's internal designation alone.

STANDARDISED APPROACH (SA-TB) -- THREE COMPONENTS

Market Risk Capital (SA) = SBM + DRC + RRAO

Component 1: Sensitivities-Based Method (SBM)