| Description |
1 online resource (48 pages). |
|
text file |
| Series |
IMF working paper ; WP/12/238
|
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IMF working paper ; WP/12/238.
|
| Note |
Title from PDF title page (IMF Web site, viewed Oct. 5, 2012). |
| Summary |
We study the effects of a bank's engagement in trading. Traditional banking is relationship-based: not scalable, long-term oriented, with high implicit capital, and low risk (thanks to the law of large numbers). Trading is transactions-based: scalable, shortterm, capital constrained, and with the ability to generate risk from concentrated positions. When a bank engages in trading, it can use its 'spare' capital to profitablity expand the scale of trading. However, there are two inefficiencies. A bank may allocate too much capital to trading ex-post, compromising the incentives to build relationships ex-ante. And a bank may use trading for risk-shifting. Financial development augments the scalability of trading, which initially benefits conglomeration, but beyond some point inefficiencies dominate. The deepending of the financial markets in recent decades leads trading in banks to become increasingly risky, so that problems in managing and regulating trading in banks will persist for the foreseeable future. The analysis has implications for capital regulation, subsidiarization, and scope and scale restrictions in banking. |
| Bibliography |
Includes bibliographical references. |
| Note |
"Research Department." |
|
"October 2012." |
| Local Note |
eBooks on EBSCOhost EBSCO eBook Subscription Academic Collection - North America |
| Subject |
Banks and banking.
|
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Banks and banking. |
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Commerce.
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Commerce. |
| Genre/Form |
Electronic books.
|
| Added Author |
Ratnovski, Lev.
|
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International Monetary Fund. Research Department.
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| ISBN |
9781475512472 electronic book |
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1475512473 electronic book |
|
