The Basel Committee
on Banking Supervision (BCBS) has released its framework
for the Fundamental Review of the Trading Book (FRTB). Counsel
and industry in the US are concerned about a potentially
negative impact on market liquidity.
In a sign of compromise with industry, and policymakers
concerned about growth, the BCBS has watered down its initial
proposals for raising capital requirements in its framework,
released on January 14.
Nonetheless, increased weight will be placed on trading book
assets, as of 2019, in the calculation of banks’
total risk-weighted assets. One likely result is reduced
trading activity by banks. That potentially leads in a straight
line to concerns over market liquidity. "Whenever there are
fewer market-makers, there’s less liquidity," said
Richard Farley, partner at
Paul HastingsIn a joint press release, three industry
groups expressed similar logic on liquidity. The Global
Financial Markets Association (GFMA), Institute of...