enterprise data management

Data Considerations for FRTB Success

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Blog – Sensitivities Based Method or Internal Models Approach


With FRTB, it's all about the data

On the face of it, the Fundamental Review of the Trading Book (FRTB) calculations seem complex. Risk sensitivities, risk weightings, curves, surfaces, Value-at-Risk, Expected Shortfall, liquidity horizons and default probabilities are all involved.

However, when looking at the complexity in an FRTB implementation, project owners and stakeholders should consider that:

  • these calculations are, for the most part, already being done in some guise in most banks
  • different banks will generally do these calculations in slightly different ways
  • FRTB is a set of rules which prescribe exactly how the calculations should be done

Given these considerations, the most important aspect of a successful FRTB implementation will be the standardization of the inputs to the calculations. In practice this will require that the inputs (market data, risk data) are fully validated, auditable, traceable and aligned along both time-series and contributor dimensions.

While tools (dashboards, statistical calculation routines) for market risk capital calculations will be needed, the true strength of any FRTB capability will be data alignment and auditability. Properly aligned data makes the calculations more transparent and defensible in the face of increasingly onerous audit and regulatory scrutiny.

Download the whitepaper here: Data Considerations for FRTB Success