BCBS Compliance - Standardised Approach

In a Nutshell...

This page describes how requirements in BCBS 352 are implemented in the FRTB (Standardised Approach) Accelerator.
The formulae and definitions in the BCBS document are not repeated here – instead, references are provided to the relevant paragraphs, as appropriate.

Sensitivity Based Method (SBM)

BCBS Directive 352 tells us that (for the "high correlations", "medium correlations" and "low correlations" scenarios as described in Paragraph 54), "For each scenario, the bank must determine a scenario-related risk charge at the portfolio level as the simple sum of the risk charges at risk class level for that scenario. The ultimate portfolio level risk capital charge is the largest of the three scenario-related portfolio level risk capital charges".

So the SBM Risk Charge (described above as the 'ultimate portfolio level risk capital charge') is defined to be to the highest value of three measures, as shown below:

Calculations

The FRTB Accelerator contains measures for the calculation of risk charges from sensitivities. The calculation from sensitivity to risk charge takes place in several steps where the output from one step feeds into the next, creating a chain of calculations. The chain exposes the intermediate measures for:

Raw (input) sensitivities on a drill through panel and / or pivot view
Conversion of input sensitivities to a reference currency (if the source systems provide native currency sensitivities)
Calculation of Weighted Sensitivities
Calculation of the Risk Position
Calculation of the Risk Charge

Measures

The output of each stage of the calculation chain is available as a measure that can be displayed.

SA Sensitivities
GIRR	Delta	Vega	Curvature
CSR Non-Sec	Delta	Vega	Curvature
CSR CTP	Delta	Vega	Curvature
CSR Non-CTP	Delta	Vega	Curvature
Equities	Delta	Vega	Curvature
FX	Delta	Vega	Curvature
Commodities	Delta	Vega	Curvature

BCBS-352 Reference

Paragraphs: 51 to 55 and 59 to 133.

Default Risk Charge (DRC)

DRC Non-Securitisations (Non-Sec)

The approach for the DRC comprises a four-step procedure:

The JTD loss amounts for each instrument, subject to default risk, are provided as input to the FRTB Accelerator. The gross JTD can either be supplied to the FRTB Accelerator or it can be calculated by the FRTB Accelerator given the LGD, notional and market value.
Net long and net short amounts are produced in distinct obligors, by the offsetting of the JTD amounts of long and short exposures with respect to the same obligor (where permissible).
The net short exposures are discounted by a hedge benefit ratio.
Default risk weights are applied, to complete the process of computing the capital charge.

Offsetting and Hedging

The procedure is specified in the material below. In the procedure, offsetting refers to the netting of exposures to the same obligor (where a short exposure may be subtracted in full from a long exposure), while hedging refers to the application of a partial hedge benefit from the short exposures (where the risk of long and short exposures in distinct obligors do not fully offset due to basis or correlation risks).

BCBS-352 Reference

The default risk weights as defined in BCBS 352 Paragraph 152 and the LGD thresholds in Paragraph 144 are configurable and held as part of data sets.

Scaling Factors and Weightings

The scaling factor for maturities less than one year can be calculated by the FRTB Accelerator (see references below). An indicator in the data instructs the accelerator whether or not to apply the scaling at the granularity of the input data or if the maturity should default to a pre-defined value such as 3 months. The DRC is calculated per bucket and then aggregated. The Weighed to Short ratio (WtS) and DRC are calculated as described in BCBS 352 (see below).

BCBS-352 References

The scaling factor for maturities less than one year is defined in BCBS 352 Paragraph 146.

The scaling indicator is defined in BCBS 352 Paragraph 147.

The Weighed to Short ratio (WtS) is calculated as described in Paragraph 154.

The DRC is calculated according to Paragraph 155.

DRC Securitisations Non-Correlation Trading Portfolio (Sec Non-CTP)

BCBS-352 Reference

This section is concerned with BCBS 352 Paragraph 161 through to Paragraph 165.

The functionality provided is similar to DRC Non-Sec but with bucketing and risk weights configured appropriately.

The default risk weights for "Sec non-CTP" exposures are the SEC-ERBA risk weights for long-term ratings.

BCBS-374 Reference

These risk weights are defined in BCBS 374 - Paragraph 68, and adjusted for non-senior tranches as per BCBS 374 - Paragraph 69.

DRC Securitisations Non-Correlation Trading Portfolio (Sec CTP)

BCBS-352 Reference

This section is concerned with BCBS 352 Paragraph 170 through Paragraph 175.

The functionality provided is similar to DRC Non-Sec but with bucketing and risk weights configured appropriately.

The default risk weights for "Sec CTP" exposures are the SEC-ERBA risk weights for long-term ratings.

BCBS-374 Reference

These risk weights are defined in BCBS 374 - Paragraph 68, and adjusted for non-senior tranches as per BCBS 374 - Paragraph 69.

Residual Risk Add-On (RRAO)

The FRTB Accelerator requires the input data to provide a notional per trade along with an indication as to whether the trade is exotic or not.

The risk weight is applied at 1% for exotics and 0.1% for non-exotics.

BCBS-352 Reference

This risk weight information is available in BCBS 352 Paragraph 58 (c).

Parameter sets can be used to set different RRAOs under different weightings.

Please see Parameterisation and Context Values within the "Functionality Beyond BCBS 352 and QIS Support" page.