Explanation:
The correct answer is C.
FRTB recognizes that differences in capital requirements between the trading book and banking book may give rise to regulatory arbitrage, but it does not propose harmonization of these requirements as a way to mitigate this risk. Instead, FRTB attempts to establish a clearer boundary between the two books to make it difficult for banks to misallocate assets. A, B, and D are all true.
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Q.4021 In the past, a lack of a clear distinction between the regulatory banking book and the trading book created an opportunity for regulatory arbitrage. The FRTB attempts to make the distinction between the trading book and the banking book clearer and less subjective. Which of the following is FALSE with regard to the FRTB's treatment of the boundary between the two books?
A
The FRTB establishes a more objective boundary between the regulatory banking and trading book and severely restricts subsequent movement between the books unless under extraordinary circumstances
B
Under FRTB, there must be a sincere intent to trade if an asset has to be included in the trading book
C
FRTB subjects the trading book and banking book to the same set of capital requirements so as to mitigate regulatory arbitrage
D
In an attempt to further mitigate regulatory arbitrage, FRTB distinguishes two types of credit risk exposure to a company: credit spread risk and jump-to-default risk
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