Executive summary

This paper compares the US Federal Reserve Board (Fed) Basel III reforms proposal with the Basel Committee on Banking Supervision (BCBS) minimum capital requirements for market risk, also known as the Fundamental Review of the Trading Book, or FRTB.

The aim is to highlight additional specifications for market risk capital requirements.

The Fed proposal, unveiled on July 27, 2023, includes a new standardised approach to credit risk, a revised approach to credit valuation adjustment risk, a new standardised approach for operational risk, and a revised approach to market risk.

Once finalised, capital requirements for trading activities are expected to increase substantially, more than doubling for some firms. The impact will vary widely, depending on each firm’s specific business activities and utilisation of internal models.

We have looked at the proposal for revised approach to market risk and compared it with the BCBS’s minimum capital requirements for market risk. The revised approach to market risk is largely consistent.