07453oam 22015974 450 991078647430332120230801225459.01-4755-1248-11-4755-1246-5(CKB)2670000000278930(EBL)1607012(SSID)ssj0000941793(PQKBManifestationID)11498813(PQKBTitleCode)TC0000941793(PQKBWorkID)10971664(PQKB)11650760(MiAaPQ)EBC1607012(Au-PeEL)EBL1607012(CaPaEBR)ebr10627151(OCoLC)812041171(IMF)WPIEE2012238(IMF)WPIEA2012238(EXLCZ)99267000000027893020020129d2012 uf 0engurcn|||||||||txtccrBanking and Trading /Arnoud Boot, Lev RatnovskiWashington, D.C. :International Monetary Fund,2012.1 online resource (49 p.)IMF Working PapersIMF working paper ;WP/12/238Description based upon print version of record.1-4755-1247-3 1-4755-1121-3 Includes bibliographical references.Cover; Contents; I. Introduction; II. Relationship to the Literature; III. Model; A. Approach; B. Credit Constraints; C. Banking; D. Trading; IV. Benefits of Conglomeration; V. Time Inconsistency of Capital Allocation; A. Setup: Long-term Banking; B. The Consequences of Time Inconsistency; C. Cost of Conglomeration under Time Inconsistency; VI. Trading as Risk-Shifting; A. Setup: Risky Trading; B. Risk-Shifting; C. The Interaction of Time Inconsistency and Risk Shifting; VII. Discussion; A. Front-loaded Income in Relationship Banking; B. External Equity and Internal Capital AllocationC. Policy Implications VIII. Conclusion; References; Figures; 1. The Timeline; 2. The Timeline with Time Inconsistency; 3. Relationship Banking Allocation R as a Function of Trading Opportunities; 4. The Volume of Banking (R) and Trading (T), and Profits (Π)under Conglomerated Banking; 5. The Volumes of Banking (R)and Trading (T), and Profits (Π) with Risk-shifting; 6. Time Inconsistency Arises due to a Higher Return to Trading under Risk-shifting ("Effect 1"); 7. Risk-shifting Arises due to a Higher Volume of Trading, Driven by Time Inconsistency ("Effect 2")We study the effects of a bank's engagement in trading. Traditional banking is relationship-based: not scalable, long-term oriented, with high implicit capital, and low risk (thanks to the law of large numbers). Trading is transactions-based: scalable, shortterm, capital constrained, and with the ability to generate risk from concentrated positions. When a bank engages in trading, it can use its ‘spare’ capital to profitablity expand the scale of trading. However, there are two inefficiencies. A bank may allocate too much capital to trading ex-post, compromising the incentives to build relationships ex-ante. And a bank may use trading for risk-shifting. Financial development augments the scalability of trading, which initially benefits conglomeration, but beyond some point inefficiencies dominate. The deepending of the financial markets in recent decades leads trading in banks to become increasingly risky, so that problems in managing and regulating trading in banks will persist for the foreseeable future. The analysis has implications for capital regulation, subsidiarization, and scope and scale restrictions in banking.IMF Working Papers; Working Paper ;No. 2012/238Banks and bankingStocksBanks and BankingimfFinance: GeneralimfTaxationimfIndustries: Financial ServicesimfMoney and Monetary PolicyimfFinancial Risk ManagementimfBanksimfDepository InstitutionsimfMicro Finance InstitutionsimfMortgagesimfInvestment BankingimfVenture CapitalimfBrokerageimfRatings and Ratings AgenciesimfFinancial Institutions and Services: Government Policy and RegulationimfFinancing PolicyimfFinancial Risk and Risk ManagementimfCapital and Ownership StructureimfValue of FirmsimfGoodwillimfGeneral Financial Markets: Government Policy and RegulationimfTaxation, Subsidies, and Revenue: GeneralimfMonetary Policy, Central Banking, and the Supply of Money and Credit: GeneralimfFinancial CrisesimfBankingimfFinanceimfPublic finance & taxationimfMonetary economicsimfEconomic & financial crises & disastersimfLines of creditimfMoral hazardimfBank soundnessimfTax incentivesimfFinancial institutionsimfFinancial sector policy and analysisimfCreditimfMoneyimfFinancial crisesimfBanks and bankingimfLoansimfFinancial risk managementimfUnited StatesimfBanks and banking.Stocks.Banks and BankingFinance: GeneralTaxationIndustries: Financial ServicesMoney and Monetary PolicyFinancial Risk ManagementBanksDepository InstitutionsMicro Finance InstitutionsMortgagesInvestment BankingVenture CapitalBrokerageRatings and Ratings AgenciesFinancial Institutions and Services: Government Policy and RegulationFinancing PolicyFinancial Risk and Risk ManagementCapital and Ownership StructureValue of FirmsGoodwillGeneral Financial Markets: Government Policy and RegulationTaxation, Subsidies, and Revenue: GeneralMonetary Policy, Central Banking, and the Supply of Money and Credit: GeneralFinancial CrisesBankingFinancePublic finance & taxationMonetary economicsEconomic & financial crises & disastersLines of creditMoral hazardBank soundnessTax incentivesFinancial institutionsFinancial sector policy and analysisCreditMoneyFinancial crisesBanks and bankingLoansFinancial risk managementBoot Arnoud1536609Ratnovski Lev1193852DcWaIMFBOOK9910786474303321Banking and Trading3785467UNINA