Fundamental Review of the Trading Book (FRTB)

The Fundamental Review of the Trading Book is a reform developed by the Basel Committee to overhaul the prudential treatment of market risk in banks, in response to the shortcomings revealed by the 2008 financial crisis. It redefines the boundary between trading book and banking book, strengthens risk-measurement models, favouring extreme-loss risk measures rather than classic value at risk alone, and tightens the associated capital requirements. Although banking, this reform is of interest to insurance through financial conglomerates, the market activities of large insurers and the overall coherence of financial-risk regulation. It illustrates the evolution of risk-measurement techniques toward better accounting for extreme events and tail losses, a problem common to banking and insurance. For the financial-risk observer, the FRTB is a milestone in the growing sophistication of prudential models and a point of comparison with insurance approaches to market capital measurement.

The FRTB favours an extreme-loss risk measure rather than value at risk alone, reflecting a methodological evolution relevant well beyond the banking sector.

FRTB, Fundamental Review of the Trading Book, revue fondamentale du portefeuille de négociation