Basel Rule on Trading to Force Capital Up

By Steven Sloan


Global financial institutions will have to hold much more capital behind trading books — up to three times as much — when a market risk rule adopted by the Basel Committee on Banking Supervision takes effect by yearend 2010. The group of international regulators released a report Thursday illustrating the rule’s impact, and the results make it clear that the margins on investment banking will be squeezed. In fact, once in effect, the requirements could force some large banks to back away from the business, even though it has been such a huge contributor to recent earnings. “This is confirmation of the fact that the new trading book regime will be very, very stringent,” said Karen Shaw Petrou, the managing director of Federal Financial Analytics Inc. “This will force a strategic rethink of large diversified banks.”