Hello, hope you are doing well. We calculate credit exposures for positions in the trading book. These exposures are monitored against the limits framework approved for the respective counterparty by the bank's management. This helps us measure counterparty credit risk. Further, for positions in the banking book, we do keep a track of quantities for example like portfolio duration which gets driven by market factors. So that way do monitor market risk that the banking book positions get exposed to. Hope that answers the query!
@@finquestinstitute9996 Thanks for your response. Apologize I didn't make it clear before, my question is specific for regulatory capital purpose. Is the answer still the same?
@@south_mountain hi, there is a CVA capital charge calculated under the market risk framework of Basel III to account for credit transition risk of counterparties for positions in the trading book. For banking book positions (say loan/overdraft etc.) there is no separate market risk charge computed if I recollect correctly as per Basel III guideline.
Hi, loans will come under the banking book because a bank would like to hold till maturity as these form the asset base for a bank. However, there could be a case where a bank may want to offload a few loans off its book via say securitization of loan assets. In case of such securitized products, they are a part of the Trading book. Otherwise, generally there is not enough Liquidity to trade loans in the market ; also there are legal/regulatory conditions to be met before loans can trade.
Thanks for sharing. Quick question, does it mean we do not calculate credit risk for trading book and market risk for banking book?
Hello, hope you are doing well. We calculate credit exposures for positions in the trading book. These exposures are monitored against the limits framework approved for the respective counterparty by the bank's management. This helps us measure counterparty credit risk. Further, for positions in the banking book, we do keep a track of quantities for example like portfolio duration which gets driven by market factors. So that way do monitor market risk that the banking book positions get exposed to. Hope that answers the query!
@@finquestinstitute9996 Thanks for your response. Apologize I didn't make it clear before, my question is specific for regulatory capital purpose. Is the answer still the same?
@@south_mountain hi, there is a CVA capital charge calculated under the market risk framework of Basel III to account for credit transition risk of counterparties for positions in the trading book. For banking book positions (say loan/overdraft etc.) there is no separate market risk charge computed if I recollect correctly as per Basel III guideline.
@@finquestinstitute9996 Thank you so much for the explanation.
@@south_mountain thank you!
I have seen some loans and advances to customers/banks under trading assets...what are they..if you could help?
Hi, loans will come under the banking book because a bank would like to hold till maturity as these form the asset base for a bank. However, there could be a case where a bank may want to offload a few loans off its book via say securitization of loan assets. In case of such securitized products, they are a part of the Trading book. Otherwise, generally there is not enough Liquidity to trade loans in the market ; also there are legal/regulatory conditions to be met before loans can trade.
@@finquestinstitute9996 thanks
Awesome Inc
Thank you so much !. Happy to know the video was useful !