Skip to content

FRM Part II · FRM Exam Part II · Fundamental Review of the Trading Book

A bank's risk team is reviewing how the Fundamental Review of the Trading Book (FRTB) treats securitization positions held in the trading book. Which statement is correct under the FRTB standardised approach?

Under FRTB, securitization positions are not eligible for internal models and must be capitalised using the standardised approach, which has dedicated securitization charges. Risk weights depend on tranche characteristics, and the positions face both sensitivities-based and default risk capital, so they are not exempt from the standardised approach.

  1. ASecuritization positions are exempt from the standardised approach and are instead capitalised under the internal models approach only
  2. BSecuritization positions, other than those in the correlation trading portfolio, are excluded from the internal models approach and capitalised under the standardised approachCorrect
  3. CAll securitization positions receive the same risk weight regardless of tranche seniority or underlying pool
  4. DSecuritization positions are capitalised only through the default risk charge, with no sensitivities-based charge

Explanation

Under FRTB, securitization exposures are not eligible for the internal models approach and must be capitalised under the standardised approach. The standardised approach has separate treatment for securitizations, including a sensitivities-based charge and a default risk charge with tranche-dependent risk weights. Statement A reverses the rule, and C ignores that risk weights depend on tranche features.

Did you get it right without looking?

One question tells you little. A timed set on Fundamental Review of the Trading Book shows your real accuracy, how long you take and where you lose marks.

Practise Fundamental Review of the Trading BookFree diagnostic mock

More Fundamental Review of the Trading Book questions