Fundamental Review of the Trading Book

It is getting serious…

Fundamental changes are coming up for the banking industry. In course of its aim to increase the stability of the financial system, the Basel Committee is going to make substantial changes to the way required capital for market risks is calculated – and after the recently published consultative paper “Fundamental Review of the Trading Book: Open Issues”, it becomes quite clear what form these changes will take.

Not just about the trading book

The Basel Committee aims to specify the boundary between the trading and the banking book more clearly and unambiguously. While still keeping the intention to trade, hedge and profit from short-term price fluctuations as a guiding principle, the Committee gives strict rules and assumptions about which book certain positions must be allocated. In particular, positions which nowadays can safely be held in the banking book might be switched to the trading book in the new setup. Even in cases where no trading book is needed currently, under the new guidelines the need for a trading book might arise.

The new standard approach – taking sensitivities into account

While the Basel Committee originally suggested calculating required capital based on future cash-flows, it now favors a sensitivity-based approach (SBA) due to feasibility concerns from the financial industry. This new approach directly uses risk measures, the sensitivities, to compute the required capital, therefore, the required capital is directly connected to the risk of the portfolio. However, this also poses challenges regarding data availability and quality as all the sensitivities and fundamental information of the instrument for correct bucketing must be available. In particular, missing fundamental data could lead to instruments being mapped to the residual bucket, which would result in a significant increase in the required capital.

Though challenging, the new approach has the potential to increase the stability not only of the financial system but to secure each individual bank. Have a look at the attached flyer to get more detailed information or contact us directly to discuss the upcoming challenges for your business.


Published by



Manuel Plattner
Birchstrasse 160
8050 Zürich
+41 58 792 1482

Manuel Plattner has about 10 years of experience in the banking area and is specialised in advising banks in financial risk and regulatory topics. In his actual position he is responsible for the competence centre risk of financial services consulting of PwC Switzerland.

He gained experience on various projects for national and globally active banks and financial infrastructures regarding the implementation of financial and operational risk frameworks as well as internal control systems.

Before joining PwC he was engaged in the Financial Institutions Risk Management department of a competitor where he executed various forensic/fraud detection projects in the area of FX trading. Prior to that engaged in a Swiss Private Bank domiciled in Zurich as a financial risk manager.

Leave a Reply