FRTB and new EU rulings for capital requirements of banks: What will the impact be for Danish bonds?
A key element in FRTB is a completely new standard method for calculating market risk. This article gives you an introduction to the standard method and a comprehensive review of how the new capital requirements are to be calculated for Danish bonds.
The Basel Committee's Fundamental Review of the Trading Book (FRTB) was completed in 2019 and forms the framework for new EU rules (CRR2) for capitalization of market risk in trading portfolios of banks. A key element is a completely new standard method for calculating market risk. This article provides an introduction to the standard method and a review of how the new capital requirements for Danish bonds will be calculated moving forward. In isolation, the capital requirements for fixed-rate callable mortgage bonds will increase significantly because banks must provide capital for convexity and volatility risks that are not capital-charged in the current legislation. Short term bullet bonds and floating-rate bonds are hit less hard, which is probably good news for the banks.
European banks are required to report their capital requirements in accordance with CRR2 by fall 2021. Click on the article below and find out what the new rules mean for you – and what you can do to get safely through the calculations.
The report is currently available in Danish. Please do not hesitate to contact us if any elaboration on CRR2/FRTB is needed. We will be happy to assist you.