NatWest Group Plc has proposed changing its risk models after suffering a string of unexpected losses that left its trading unit in the regulatory “red zone.”
(Bloomberg) — NatWest Group Plc has proposed changing its risk models after suffering a string of unexpected losses that left its trading unit in the regulatory “red zone.”
NatWest Markets Plc exceeded its risk estimates on 16 days in 2022, and booked actual trading losses that were larger than expected on 10 days, according to recent company filings. This was more than allowed by financial supervisors.
Banks are supposed to keep track of the “value at risk” within their trading books under international Basel rules. They back-test their models each day to make sure any gains or losses were broadly expected.
But this proved particularly tough during last year’s volatility, with markets jolted by surprises such as the Russian invasion of Ukraine, the UK’s disastrous “mini budget” and rapidly rising interest rates. Banks including HSBC Holdings Plc and Standard Chartered Plc have vowed to update their risk models after being hit by a series of gains or losses that were greater than they anticipated.
While HSBC and StanChart hit the “amber zone” under Basel rules, NatWest’s more frequent breaches mean it’s expected to remain in the “red zone” until at least the end of the first quarter, inviting greater regulatory scrutiny.
“A prospective update to make the VaR model more sensitive to recent market conditions has been submitted to the PRA,” said the bank in a filing, referring to the UK Prudential Regulation Authority, which is part of the Bank of England.
Representatives for NatWest and the PRA declined to comment.
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