Banks' securities trading has sharply risen as a source of concern for regulators over the past decade, so it seems strange that it hasn't until now been a metric for lenders’ risks to the world financial system.
Stiffening capital standards for banks’ trading books was a centerpiece of the Basel III package responding to the global financial crisis of a decade ago. Policymakers, meanwhile, sought to constrain the operation of capital markets in other ways, such as the US’s Volcker Rule against banks trading with their own money, or UK and French moves to ringfence “casino banking” away from ordinary retail savings and lending.
But trading volume is only just now being factored in to the work of international authorities that decide which banks need extra safeguards for being so large or so interconnected with others that their failure could imperil the wider financial system.
Comment: Banks' insurance work may outweigh trading in measure of systemic importance
6 August 2018 7:30pm