Desk heads argue about positions, not about the model

The bank had met the first reporting date for FRTB with a programme that produced the right number. Its desk heads then asked the question that every desk head asks, which is why the number is what it is, and the programme could not say. A capital charge is the square root of a sum, so it does not add up by position, and the tools that report it show a total and a table of pieces that do not sum to it.

The pieces were allocated by a rule that the team had chosen and could defend, but that moved the charge between desks when positions were added or removed, and could not be reproduced from one day to the next without the run that made it.

GraphAtlas splits a capital charge exactly. Each desk, risk factor and trade receives the part of the charge that rests on it, and the parts add up to the total with no remainder. The engine also says which correlation scenario binds, so that the desk that makes it bind sees that it does.

The sensitivities-based method runs on the kernel in eighteen minutes where the in-house implementation took three hours, and the SA-CVA run, which reads the same sensitivities, shares the first part of the work.

Each of the 42 desks now has a number that it can reconcile to the group figure, and the meeting that used to be spent on the allocation rule is spent on the positions. Capital management reports the attribution to the board risk committee with the receipt of the run it came from.

The bank has since asked for the same engine to price capital into new trades at the point of sale, which is the use that the attribution was designed for.