Tulliver's banking book
less pleasant reading than a man might desire toward Christmas.
All banks were asked to complete the same test templates that looked at risks on trading and banking books, including exposures to home, corporate and interbank loans, interest rate volatility and credit risks.
CEBS said the test on the banking book stress both the numerator and denominator for capital ratios -- reducing the capital held, and increasing the risk weighted assets.
As a result, the "haircuts" only apply to bonds held in the trading book, although the sovereign stresses do feed into credit losses in the banking book.
This disclosure separates the trading and banking book holdings, and reports both gross and net positions, taking account of hedging contracts.
Under IAS 39 and Basel II, European banks are required to establish principles for recognising and measuring corporate holdings within their banking books. These include financial assets, financial liabilities and some contracts to buy or sell non-financial items.
The GridServer deployment supports the unique pricing of the group's banking book, a requirement of International Accounting Standard (IAS) 39 and Basel II.
As Jones and Mingo argue, the current division of bank assets between the trading and banking books in and of itself obliges regulators to consider changes since it provides banks with strong incentives to reduce capital requirements through arbitrage.
Furthermore, if banks are adopting a more quantitative approach, regulators may be able to develop more sophisticated and potentially less distortionary capital requirements for banking book exposures.
For regulators, a crucial question that Jones and Mingo, and to some extent Gray, address is whether bank models are sufficiently developed and comprehensive to be employed in the calculation of risk-sensitive capital requirements on banking book exposures.
supervisors suggest capital add-ons for banking book assets over and above the Basle 8 percent capital charge.