In the news: Prudential rules applied to the banking book under the Basel III agreements continue to be debated. Last week, three major international financial associations published a joint research paper in which they put forward counterproposals to the standard approach.
A bank’s banking book includes all assets in the banking portfolio that are intended to be held to maturity.
In contrast, a bank’s trading book is an account that includes all assets intended to be traded in the short/medium term.
Depending on where the asset is located, the prudential rules that the bank must comply with will differ. The idea is, for example, that market risk is not supposed to be taken into account for assets in the banking book, whereas it obviously is for those in the trading book.
More details are available in this document: http://www.bis.org/publ/bcbs219.pdf
Julien P. and Benjamin R.
