BOE/PRA out with a paper on bank risk controls
- Says it will likely mean increased operational costs for banks
- Costs likely to be a one off 5% of operational costs and raise ongoing costs by 3% a year
- Proposals to see banks retail arms ring fenced and ensure continuity in a crisis
- Proposals will require the ring fenced part of a bank to treat the rest of the group like an external company
The key in all this is the cost issue. If banks deem those too high then they'll probably look to get shot of the area that will cost them. We're already seeing a flood of banks getting out of their direct commodities businesses due to the slump in that market, and it won't take much for them to shed other areas
While it may mean the banks have less risk on their books it also has a detrimental effect for liquidity, which is potentially bad news for us traders, and it also shifts the risks onto other intermediary trading houses that will try to pick up the slack
