The full form of FRTB is Fundamental Review of the Trading Book.
FRTB is a set of regulatory reforms introduced by the Basel Committee on Banking Supervision to improve the measurement and management of risk in banks' trading books.
The reforms aim to:
- Reduce the risk of systemic failures: By requiring banks to hold more capital against their trading book exposures, the reforms aim to reduce the risk of a bank failing and causing a ripple effect throughout the financial system.
- Improve the accuracy of risk measurement: The reforms require banks to use more sophisticated models and data to measure their risk, which should lead to a more accurate assessment of their exposures.
- Enhance transparency and comparability: The reforms introduce a standardized framework for measuring risk, which should make it easier for investors to compare the risk profiles of different banks.
FRTB is a complex and far-reaching set of reforms that have had a significant impact on the banking industry. The reforms have led to increased capital requirements, changes in trading strategies, and new investment in risk management systems.
