A New Framework for the Trading Book

Federico Cabañas


This article was first published as a chapter in Basel III and Beyond on July 27, 2011, by Risk Books.

4.1 Introduction

Throughout 2009 and 2010 most public attention has focused on the completion of the Basel III package of regulatory measures, which were published in December 2010. Basel III raises the resilience of the banking sector by strengthening the Basel II regulatory capital framework.

Traditionally, regulation had been designed with a purely microprudential (institution-specific) perspective and relied almost entirely on individual capital-adequacy indicators. Regulation was constructed mainly around each individual institution’s capital ratio without taking into account a “macro” view (see Chapter 2). The focus on capital also implied that regulation largely ignored other risks, which had no direct impact on losses, such as liquidity.

Basel III does widen the traditional scope of regulation, including for the first time macroprudential elements, such as the introduction of a leverage ratio, a new 2.5% conservation buffer or, for globally systemic banks, establishing additional capital buffers. Basel III also introduces for the first time a global liquidity

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