Part A covered what market risk is and how far its scope reaches. Part B answers a more practical question: once a bank knows an exposure is subject to market risk capital, which method does it actually use to calculate that capital? MAR11.7 through MAR11.9 set out the three available methods, who is allowed to choose which one, and — critically — which exposures are never left to choice at all.
If parts of this feel familiar, that’s intentional: Article 1 of this series previewed the mandatory Standardised Approach requirement as a way of explaining why this entire series focuses on the Standardised Approach in the first place. This article is the complete, authoritative version of that rule, in full, from its home chapter.
The Three Methods
In determining its market risk capital requirement, a bank may choose between two broad methodologies, subject to national supervisor approval: the Standardised Approach (MAR20–MAR23) and the Internal Models Approach, or IMA (MAR30–MAR33). Separately, supervisors may allow banks that maintain smaller or simpler trading books to use a third, lighter option — the Simplified Standardised Approach, set out in MAR40.
| Method | Source Chapter | Who It’s For |
| Simplified Standardised Approach | MAR40 | Banks with smaller or simpler trading books, at supervisory discretion. |
| Standardised Approach | MAR20–MAR23 | The default method — and, as this article covers below, mandatory for almost everyone in some form. |
| Internal Models Approach (IMA) | MAR30–MAR33 | Approved per trading desk, subject to strict supervisory approval. |
Sourced from MAR11.7 (introductory text).
Who Qualifies for the Simplified Alternative?
The Simplified Standardised Approach is not available by default — it is granted at supervisory discretion, and the standard gives supervisors three indicative criteria to consider when judging whether a bank is a good fit for it.
| # | Indicative Criterion |
| 1 | The bank should not be a global systemically important bank (G-SIB). |
| 2 | The bank should not use the Internal Models Approach for any of its trading desks. |
| 3 | The bank should not hold any correlation trading positions. |
Meeting these criteria does not guarantee access to the simplified alternative — its use is explicitly subject to supervisory approval and ongoing oversight. Supervisors retain the power to mandate that a bank use the full Standardised Approach instead, even where the bank technically meets all three indicative criteria, if that bank runs relatively complex or sizeable risks in particular risk classes. In other words, these criteria are a starting filter, not an automatic entitlement.
Sourced from MAR11.7(1)–(2).
https://www.bis.org/basel_framework/chapter/MAR/11.htm?inforce=20230101&published=20200327
The Rule That Shapes This Entire Series: Mandatory Standardised Approach Calculation
This is the single most consequential rule in MAR11, and the reason this series is built around the Standardised Approach rather than the Internal Models Approach. All banks — except those specifically permitted to use the Simplified Standardised Approach under MAR11.7 — must calculate their capital requirements using the Standardised Approach. That much might be expected. What is easy to miss is the second half of the rule: banks approved to use the Internal Models Approach must also calculate and report Standardised Approach capital requirement values, in full, alongside their modelled numbers.
| Two Separate Standardised Approach Calculations for IMA Banks A bank using the Internal Models Approach for any of its trading desks does not calculate the Standardised Approach once — it calculates it in two distinct ways: 1. Across all desks, regardless of IMA eligibility: the bank must calculate the Standardised Approach capital requirement for all instruments across all trading desks, including desks that are eligible for the Internal Models Approach. 2. Standalone, desk by desk, for IMA-eligible desks: the bank must additionally calculate the Standardised Approach capital requirement separately for each trading desk that is eligible for the IMA, treating each one as if it were its own standalone regulatory portfolio — with no offsetting benefit across trading desks. |
The standard sets out four specific reasons why this standalone, per-desk calculation matters:
| # | Purpose of the Standalone Per-Desk Standardised Approach Calculation |
| a | It serves as an indication of the fallback capital requirement for any desk that fails the Internal Models Approach eligibility criteria set out in MAR30, MAR32 and MAR33. |
| b | It generates information on how internal model capital outcomes compare to a consistent benchmark, making implementation easier to compare between banks and across jurisdictions. |
| c | It allows supervisors to monitor the relative calibration of standardised versus modelled approaches over time, facilitating adjustments where needed. |
| d | It provides macroprudential insight in a consistent, ex ante format. |
Sourced from MAR11.8, including all four sub-purposes in full.
Two Categories That Are Always on the Standardised Approach
Separate from the IMA-related rules above, the standard identifies two categories of exposure that must always be capitalised using the Standardised Approach, regardless of which method a bank otherwise uses for the rest of its trading book.
- Securitisation exposures.
- Equity investments in funds that cannot be looked through, but are still assigned to the trading book under the specific conditions of RBC25.8(5)(b).
| A Direct Link Back to Article 2 RBC25.8(5)(b) is a condition we covered in Article 2 of this series: a fund equity investment can be assigned to the trading book, rather than defaulting to the banking book, if the bank obtains daily price quotes for the fund and has access to the information in the fund’s mandate or in the national regulations governing that fund. MAR11.9 clarifies that even when a fund investment qualifies for the trading book this way — but the bank still cannot look through to the fund’s individual underlying components — the Standardised Approach must be used for it. The Internal Models Approach is not an option for this specific category, no matter how sophisticated the bank’s models are elsewhere. |
Sourced from MAR11.9.
https://www.bis.org/basel_framework/chapter/MAR/11.htm?inforce=20230101&published=20200327
Why This Series Is Built the Way It Is
Put together, Part A and Part B of this article explain both the reach and the mechanics of FRTB’s market risk framework. Every bank in scope — from one running the simplified alternative to a G-SIB with sophisticated internal models across dozens of desks — eventually has to produce a Standardised Approach number. For simplified-alternative banks, it is essentially their only number. For full-Standardised-Approach banks, it is their primary number. For IMA banks, it is a mandatory parallel calculation, run twice over, in two different configurations, for four distinct supervisory purposes. That universality is exactly why this series builds the Standardised Approach from the ground up, rather than starting with the Internal Models Approach.
Looking Ahead
With MAR11 now fully covered across both parts, the next article turns to MAR12 — the formal definition of a trading desk. We have used the term casually throughout this series already (MAR10 gave us the working definition, and MAR11.8 leans on it heavily for the standalone per-desk calculation), but MAR12 sets out the detailed conditions a trading desk must actually meet to be recognised as one for capital purposes.
Frequently Asked Questions
Do banks using internal models still need to calculate the Standardised Approach?
Yes. Banks approved for the Internal Models Approach must calculate the Standardised Approach twice: once across all instruments and desks combined, and separately on a standalone, no-offsetting basis for each IMA-eligible desk.
What are the criteria for using the Simplified Standardised Approach?
The bank should not be a G-SIB, should not use the Internal Models Approach for any trading desk, and should not hold correlation trading positions. Meeting these criteria is not automatic — use is subject to supervisory approval, and supervisors can still require the full Standardised Approach for banks with complex or sizeable risks.
Are there exposures that must always use the Standardised Approach?
Yes: securitisation exposures, and equity investments in funds that cannot be looked through but qualify for the trading book under RBC25.8(5)(b), must always be capitalised using the Standardised Approach, regardless of the bank’s approach elsewhere.