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

A desk's trading book charge would be 80 million, whereas the banking book charge for the same positions would be 50 million. The bank moves the positions to the banking book with supervisory approval after a reclassification event deemed extraordinary. The bank is also required to avoid capital benefit. Which additional capital requirement applies?

The bank must hold an additional 30 million. FRTB imposes the difference between the capital before and after the reclassification, 80 minus 50, as an additional requirement, so the switch yields no capital benefit even with supervisory approval.

  1. A0, because supervisory approval removes the requirement
  2. B30 million, the excess of the capital before over that after the switchCorrect
  3. C50 million, the banking book charge
  4. D80 million, the original trading book charge

Explanation

Where reclassification reduces capital, the bank must hold the difference as an additional Pillar 1 requirement: 80 − 50 = 30 million. Approval does not remove it. Adding the full charge of either book mistakes the base of the adjustment.

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