Trading Book

Bank regulators make a formal distinction from a regulatory capital perspective between assets held in the so-called trading book (which are subject to market risk capital requirements) and assets held in the so-called banking book (which are subject to credit risk capital requirements). Financial instruments, currencies and commodities that banks hold for short-term resale, to profit from short-term price movements, or to lock in arbitrage profits must be designated as trading book instruments (unless they meet regulatory exclusion criteria). Trading assets are governed by the Fundamental Review of the Trading Book (FRTB), the capital standard developed by the Basel Committee on Banking Supervision (BSBC). The FRTB sets out the rules that determine how banks must allocate instruments between the books.


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