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Banks face doubling of trading book capital - study

Published 10/15/2009, 07:39 AM
Updated 10/15/2009, 07:42 AM

LONDON, Oct 15 (Reuters) - Banks face a doubling or more of capital requirements for running trading books in some cases as part of wider efforts to crack down on risky behaviour, a study by the global regulatory body showed on Thursday.

The findings of the Basel Committee on Banking Supervision's impact study on its new capital rules for bank trading books are in line with comments from regulators.

Assets held on trading books have been more lightly treated under capital requirements rules than assets parked on the bank's main books.

The financial crisis highlighted dangers from risky assets such as securitised products which sank in value or became untradable in the credit crunch.

The Basel Committee adopted new rules for trading book capital earlier this year but they are not due to be applied until the end of 2012 along with a host of other new capital rules.

Banks warn that unless new capital charges are properly costed and assessed, it could be harder to lend to companies and aid economic recovery.

"The Committee will conduct an impact study in 2010 which will focus on correlation trading activities," the committee said in its study.

The study, based on data from 43 banks across 10 countries, showed that banks face an average increase of at least 11.5 percent of overall capital requirements and 223 percent of market risk capital requirements.

This excludes any capital charges for securitisation exposures, the committee said.

Some banks did not report data on all aspects of the new Basel rules so changes in capital requirements are likely to be higher in some cases, the committee said.

The Basel Committee's impact study next year will focus on correlation trading activities which will be used to evaluate a floor for a comprehensive risk capital charge.

Financial experts say such a magnitude of increase will prompt some banks to rethink their business models and ask whether they want to continue operating a trading desk.

(Reporting by Huw Jones, editing by Victoria Main)

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