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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:
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.