| Abstract |
Liikanen, Vickers, and Volcker all question current banking-trading links. This column offers analytic scaffolding for thinking about the separation of banking and trading. Banking generates low risk returns from relationship-based activities; trading generates high-risk returns from short-term concentrated positions. The two are linked since trading allows banks to profit from the ‘spare’ banking capital, but deeper financial markets magnify problems of managing and regulating trading by banks.
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