FSA says banking trading warrants tougher action

City A.M. Reporter
ENDING the regulatory dividing line between a bank’s trading and core books would price risk better and help avoid public bailouts sparked by the financial crisis, the markets watchdog said yesterday.

The Financial Services Authority unveiled a 126-page discussion paper looking at approaches to tightening up the rules, that would prevent banks from exploiting differences in the amount of capital they must hold against losses in their trading and banking books.

Paul Sharma, FSA director of prudential policy, said: “The financial crisis has highlighted that, for trading activities in particular, an over-reliance on the principles of efficient financial markets can lead to severe consequences when risks are misunderstood.”