Regulation of bank proprietary trading post 2007–09 crisis: An examination of the Basel framework and Volcker rule

Gordon Alexander, Alexandre Baptista () and Shu Yan

Journal of International Money and Finance, 2021, vol. 119, issue C

Abstract: In the aftermath of bank proprietary trading losses in the 2007–09 crisis, the Basel framework uses stressed Conditional Value-at-Risk to set minimum capital requirements for proprietary trading portfolios, whereas the Volcker rule restricts their composition in the US. With or without this rule, such requirements have the benefit of inducing a reduction in the risk of the optimal portfolio (measured by standard deviation) but at the cost of increasing its risk-to-minimum capital requirement ratio. As a hypothetical regulatory alternative, the proper use of standard deviation to set minimum capital requirements and circumvent pro-cyclicality improves upon the Basel framework and Volcker rule.

Keywords: Post-crisis bank regulation; Proprietary trading; Basel framework; Volcker rule; Pro-cyclicality (search for similar items in EconPapers)
JEL-codes: D81 G11 G21 G28 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560621001418
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:119:y:2021:i:c:s0261560621001418

DOI: 10.1016/j.jimonfin.2021.102490

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().