Final Trading Book capital rules provide some relief to investment banks

Final Trading Book capital rules provide some relief

After many years in the making and the subject of much debate and lobbying, the Basel Committee on Banking Supervision has published today its revised capital standards for the Trading Book.

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After many years in the making and the subject of much debate and lobbying, the Basel Committee on Banking Supervision has published today its revised capital standards for the Trading Book.  The rules which are due to come into force in 2019 are estimated to increase market risk capital requirements by 40% on a weighted average basis. Whilst this is down versus the previous estimates and will therefore provide some relief to the industry, it still represents a material increase in capital requirements.

Rob Smith, Banking Director, KPMG – “We welcome the adjustments the Basel Committee have made in the final standards, the Committee have clearly recognised the concerns flagged by the banking industry. However, the impact on capital is still significant and in a world with low returns on equity the inevitable question of the viability of certain trading businesses will be posed. Also the unanticipated consequences of the changes to product pricing, market liquidity and the potential shift to shadow banking will no doubt become clearer in the months ahead.”

Now the long-awaited rules have finally landed the real work for the banks begins. Banks will be assessing the viability of trading businesses and the hard work of re-plumbing the market risk infrastructure will start. We estimate that implementation costs over the 3 year period for each of the largest banks will be well in excess of $100m”.

ENDS

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