19  See box on ‘Excess global liquidity, asset prices and inflation, Bank of England Inflation Report, February 2006, page 5. 6  BIS Review 2/2007  How to square this with ‘originate and distribute’? Basically, in contrast to the pre-Big Bang world in the UK, today’s prevailing business model entails a significant commitment of capital by investment banks. This manifests itself in a wide range of on-balance sheet assets on top of the more traditional bond and equity books held as part of ‘market making’. For example, bridge loans are extended to finance Leveraged Buy-Outs prior to more permanent debt instruments being placed via the capital markets. Similarly, there is an intermediate stage between origination and distribution of securitised portfolios, during which they are warehoused on banks’ balance sheets. As I just described, synthetic securitisations, by contrast, can involve investment banks permanently holding corporate bonds and loans to hedge synthetic short positions, where the risk is transferred elsewhere. And loans against a very wide range of collateral are provided to finance hedge funds20; this effectively amounts to writing deeply out-of-the-money options, where the risk flows back to the financer in adverse states of the world21. So investment banking does use balance sheets, but in non-traditional ways. Beyond that, there is an extra ingredient for the commercial banks. As is apparent from the money numbers, they are very much still in the deposit-gathering business.
BNP Paribas excluded due to lack of H1 interim data. BIS Review 2/2007  13