Trading Book
Changes to the market risk framework will increase average trading book capital requirements by two to three times their current levels.
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October 18th, 2009 at 1:50 pm
Not related, but what about the “Glimpse Into The Fed’s Discount Window” at ZH, can a bank gets fundng at the discount window against equities?
October 18th, 2009 at 4:03 pm
No, the discount window doesn’t take equities as collateral and lehman didn’t have access to the window anyway (it was not a bank). The funding of equities was done through the PDCF which initially took “all collateral eligible for tri-party repurchase agreements arranged by the Federal Reserve Open Market Trading Desk (Desk), as well as all investment-grade corporate securities, municipal securities, mortgage-backed securities and asset-backed securities for which a price is available” this definition was amended in september (presumably to help lehman) to “all collateral eligible in tri-party repurchase arrangements with the major clearing banks as of September 12, 2008″ and that would include equities.
October 19th, 2009 at 12:30 pm
Sorry if this is a stupid question, but what does trading book capital actually consist of?
October 19th, 2009 at 1:23 pm
banks have 2 books, trading and banking currently with the same capital requirements and in the future the trading book will require more capital the bank will need to raise more equity or curtail the trading book.
October 19th, 2009 at 4:52 pm
Thanks jck. So same proportion of tier1/2/3 made up of the same things as the banking book. Doesn’t that mean that the banks will have to buy a lot government bonds in the next couple of years to beef up their tier1?
October 19th, 2009 at 5:48 pm
or they could just shrink the trading book, there are many ways to beef up the capital ratio. raising cash is one of them and shrinking the book or the balance sheet another. but you are right, particularly with new rules regarding liquidity as in the U.K. the result would be a sharp increase in govt paper bought by the banks (conveniently…).