S&P : Delving Deeper Into Global Trading Banks’ Risks And Rewards: A Study Of Public Disclosures

Tougher regulatory requirements, particularly as they pertain to capital, have caused some of the biggest global banks to scale back their trading businesses to ensure that profitability clears their cost of capital. Although this has enabled a few select banks with scalable trading operations to increase their market share, the overall trend has been a decline in sales and trading as a percentage of banks’ total revenues–a development that has reduced some of the market risks related to banks’ trading operations from their 2007-2008 peaks, in our view. That said, we believe trading risks remain significant, and could destabilize banks that don’t manage them properly. (Watch the related CreditMatters TV segment titled, “How Trading Risks Could Affect The Credit Quality Of The World’s Largest Banks,” dated May 22, 2014.)

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