This final part of our internal risk transfer mini-series covers two remaining pieces: transfers that happen entirely within the trading book, between ordinary trading desks, and a separate, special case involving the CVA (credit valuation adjustment) portfolio, which sits partly inside and partly outside the market risk framework.
Internal Risk Transfers Within the Trading Book
Internal risk transfers between trading desks — all within the scope of application of the market risk capital requirements, which explicitly includes FX risk and commodities risk sitting in the banking book — will generally receive regulatory capital recognition. This is the default, permissive case: unlike the trading-book-to-banking-book rule from Part A, moving risk between two ordinary trading desks is not automatically blocked.
There is one specific carve-out. Internal risk transfers between the dedicated internal risk transfer desk (the one introduced in Part C for GIRR) and other trading desks will only receive regulatory capital recognition if the same constraints covered in Part C — documentation, use of the dedicated approved desk, and standalone capital treatment — are fulfilled. In other words, the dedicated desk cannot bypass its own conditions simply by transacting with another trading desk instead of going to the external market.
Sourced from RBC25.28. https://www.bis.org/bcbs/publ/d457.htm
One further principle applies uniformly: the trading book leg of any internal risk transfer must fulfil the exact same RBC25 requirements as an instrument transacted with an external counterparty. An internal risk transfer does not get any special relaxation of the ordinary trading book rules simply because it originated internally rather than externally.
Sourced from RBC25.29. https://www.bis.org/bcbs/publ/d457.htm
| The Pattern Across All Three Risk Types Looking back across Parts B, C and this section, a consistent theme emerges: FRTB is comfortable granting capital recognition to internal risk transfers, but only where the bank can demonstrate the internal transfer is backed by something real and verifiable — a matched external hedge for credit and equity, a dedicated approved desk for GIRR, and adherence to ordinary trading book rules for desk-to-desk transfers. Nowhere does an internal record alone do the work. |
The Special Case: CVA and the Trading Book
The CVA (credit valuation adjustment) capital requirement is a separate capital framework that captures the risk of changes in counterparty credit quality on derivative positions. Because CVA risk and market risk both touch derivative positions, the standard needs explicit rules to stop the same risk being captured — and capitalised — twice.
Removing CVA Hedges From Market Risk Capital
The starting principle is straightforward: eligible external hedges that are already included in the CVA capital requirement must be removed from the bank’s market risk capital requirement calculation. A hedge that is doing its job inside the CVA framework does not also get counted inside the market risk framework.
Sourced from RBC25.30.
Internal Risk Transfers Between the CVA Portfolio and the Trading Book
Banks may enter into internal risk transfers between the CVA portfolio and the trading book. Structurally, such a transfer always has two sides: a CVA portfolio side and a non-CVA portfolio side. The treatment of each side depends on whether the CVA side is recognised within the CVA risk capital requirement.
| Side of the Internal Transfer | Treatment |
| CVA portfolio side (if recognised in the CVA risk capital requirement) | Excluded from the market risk capital requirement. |
| Non-CVA portfolio side | Included in the market risk capital requirement. |
This mirrors the same anti-double-counting logic as the hedge-removal rule above: whichever side of the risk is already being captured by the CVA framework should not also sit inside the market risk capital number.
Sourced from RBC25.31. https://www.bis.org/bcbs/publ/d457.htm
Documentation Requirement for CVA Internal Risk Transfers
As with the GIRR internal risk transfers in Part C, documentation is a hard gate here too. An internal CVA risk transfer can only receive regulatory capital recognition at all if the transfer is documented with respect to the specific CVA risk being hedged and the sources of that risk.
Sourced from RBC25.32. https://www.bis.org/bcbs/publ/d457.htm
When an External Hedge Is Also Required
There is a further, tighter condition for internal CVA risk transfers that are subject to curvature risk, default risk, or the residual risk add-on — the three components covered under MAR20 through MAR23 later in this series. In these specific cases, the internal CVA risk transfer may only be recognised in both the CVA portfolio capital requirement and the market risk capital requirement if the trading book additionally enters into an external hedge with an eligible third-party protection provider that exactly matches the internal risk transfer.
This is the same exact-matching discipline we saw for credit and equity risk transfers in Part B, now applied specifically to the subset of CVA-related internal transfers that touch these particular risk components.
Sourced from RBC25.33. https://www.bis.org/bcbs/publ/d457.htm
| Why Curvature, Default Risk and RRAO Get Extra Scrutiny Here These three components are singled out because they behave differently from the more linear, delta-based risk captured elsewhere in the sensitivities-based method — we will cover exactly what each one measures later in this series (MAR21, MAR22 and MAR23). For now, the key point is narrower: where an internal CVA risk transfer touches these specific components, an internal record alone is not enough. The standard requires the same real, external, exactly-matching hedge that credit and equity transfers require in Part B before the transfer is recognised in both capital requirements. |
A Separate, Independent Use: Hedging Counterparty Credit Risk
The final rule in this chapter is deliberately kept independent from everything above. Regardless of the CVA risk capital requirement treatment and the market risk capital requirement treatment already discussed, internal risk transfers between the CVA portfolio and the trading book can also be used to hedge the counterparty credit risk exposure of a derivative instrument — whether that derivative sits in the trading book or the banking book — as long as the requirements of RBC25.21 are met (the same exact-matching conditions from Part B of this series).
Sourced from RBC25.34.
The Complete RBC25 Internal Risk Transfer Map
With all four parts of this mini-series now complete, here is the full picture of how internal risk transfers are treated across the standard.
| Transfer Type | Core Requirement | Covered In |
| Trading book → Banking book | Never recognised for capital purposes | Part A (RBC25.19) |
| Banking book → Trading book: credit/equity | Exact-matching external hedge with eligible third party | Part B (RBC25.21–25.24) |
| Banking book → Trading book: GIRR | Dedicated, supervisor-approved desk with standalone capital treatment | Part C (RBC25.25–25.27) |
| Within the trading book (desk to desk) | Generally recognised; dedicated-desk transfers follow Part C conditions | Part D (RBC25.28–25.29) |
| CVA portfolio ↔ Trading book | Documented; exact-matching external hedge required for curvature/default risk/RRAO cases | Part D (RBC25.30–25.34) |
Looking Ahead
This completes RBC25 — the entire trading book and banking book boundary chapter, including the classification rules from our previous article and the full internal risk transfer framework across these four parts. The next article moves into MAR10, the standard’s own glossary of market risk terminology, before we begin building the Standardised Approach itself.
Frequently Asked Questions
Are internal risk transfers between two ordinary trading desks recognised for capital purposes?
Generally, yes. Transfers within the scope of the market risk capital requirements are recognised by default, except where a dedicated internal risk transfer desk is involved, in which case the same conditions covering documentation and standalone capital treatment must be met.
Can the same CVA hedge be counted in both the CVA capital requirement and market risk capital?
No. Eligible external hedges included in the CVA capital requirement must be removed from the market risk capital calculation, to avoid capturing the same risk twice.
When does a CVA internal risk transfer need an external hedge to be recognised?
When the internal CVA risk transfer is subject to curvature risk, default risk, or the residual risk add-on, it can only be recognised in both the CVA and market risk capital requirements if the trading book also has a matching external hedge with an eligible third-party protection provider.
Can a CVA-to-trading-book internal risk transfer be used for something other than CVA capital treatment?
Yes. Independent of the CVA and market risk capital treatment, it can also be used to hedge the counterparty credit risk exposure of a derivative in either the trading book or banking book, provided the exact-matching requirements of RBC25.21 are met.
https://decode-finance.com/category/market-risk-credit-risk-and-operational-risks