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.
These new products also give rise to new types of risk that the capital regime did not contemplate or capture.