Banking and trading /
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 t...
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| Other Authors: | |
| Format: | Electronic eBook |
| Language: | English |
| Published: |
[Washington, D.C.] :
International Monetary Fund,
©2012.
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| Series: | IMF working paper ;
WP/12/238. |
| Subjects: | |
| Online Access: |
Full text (Emmanuel users only) |
MARC
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| 100 | 1 | |a Boot, Arnoud W. A. |q (Willem Alexander), |d 1960- | |
| 245 | 1 | 0 | |a Banking and trading / |c prepared by Arnoud W.A. Boot and Lev Ratnovski. |
| 260 | |a [Washington, D.C.] : |b International Monetary Fund, |c ©2012. | ||
| 300 | |a 1 online resource (48 pages) | ||
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| 490 | 1 | |a IMF working paper ; |v WP/12/238 | |
| 500 | |a Title from PDF title page (IMF Web site, viewed October 5, 2012). | ||
| 500 | |a "Research Department." | ||
| 500 | |a "October 2012." | ||
| 504 | |a Includes bibliographical references. | ||
| 505 | 0 | |a Cover; Contents; I. Introduction; II. Relationship to the Literature; III. Model; A. Approach; B. Credit Constraints; C. Banking; D. Trading; IV. Benefits of Conglomeration; V. Time Inconsistency of Capital Allocation; A. Setup: Long-term Banking; B. The Consequences of Time Inconsistency; C. Cost of Conglomeration under Time Inconsistency; VI. Trading as Risk-Shifting; A. Setup: Risky Trading; B. Risk-Shifting; C. The Interaction of Time Inconsistency and Risk Shifting; VII. Discussion; A. Front-loaded Income in Relationship Banking; B. External Equity and Internal Capital Allocation. | |
| 520 | |a 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. | ||
| 546 | |a English. | ||
| 650 | 0 | |a Banks and banking. | |
| 650 | 0 | |a Commerce. | |
| 650 | 2 | |a Commerce | |
| 700 | 1 | |a Ratnovski, Lev. | |
| 710 | 2 | |a International Monetary Fund. |b Research Department. | |
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