The Fundamental Review of the Trading Book

With the entry into force in January 2022 of the new market risk framework based on the FRTB, initially planned for 2019, all banks will have to revise its market risk framework and adapt it to the new regulation. Among all changes introduced by the FRTB there are two that stand out of all of them: The complete reform of the Standardised Approach to estimate capital requirements, which estimation will be required by the regulators, even if the entity calculates its requirements through the IMA; and the substitution of VaR by ES as measure of risk. To analyse the consequences of the changes in the calculation of the SA this paper will compare the current SA with the SA under FRTB to estimate the capital increase by market risk that this new method will bring to the entities and the consequences that this can suppose for them. In the same way, results of VaR and ES at different levels of confidence will be compared in order to find the differences between both risk measures when quantifying risk.