During the past decade, a number of changes have taken place in the composition of banks’ trading books that have led supervisors to question whether the 1996 capital regime remains appropriate. Trading books today include many more credit-related products, as well as other structured and exotic products, that are far less liquid than the products for which the 1996 regime was designed.
If not, they will not be able to achieve and maintain the growing requirement for capital adequacy in the years ahead. The profitability goal has to take account of long-term considerations, and of the risks involved in lending, especially the actual and prospective losses on non-performing mortgage loans.