An analysis of the impact of FRTB SA Market Risk Capital rules on various Capital Market trade types

As part of reforms to the regulations governing Canadian banks, new rules governing the capital to be set aside for market risk have been proposed, termed the Fundamental Review of the Trading Book (FRTB). With the new rules, some Canadian banks will move to calculating capital requirements using a regulatory Standardized Approach. The goal of the research is to analyze the drivers of the FRTB capital charges and contrast these against the drivers of current regulatory capital, and both against theoretical ideals for economic capital requirements. Specifically, the research will focus on identifying trades and strategies that are adversely affected by the new FRTB capital rules, methods and strategies that would mitigate adverse effects, and how the resulting intended and unintended incentives produced by the FRTB charges may potentially impact market products, positions, and pricing.

Faculty Supervisor:

David Lozinski

Student:

Jianyu Pan

Partner:

Bank of Montreal

Discipline:

Statistics / Actuarial sciences

Sector:

Finance, insurance and business

University:

McMaster University