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Exchange Rate Movements and Capital-Asset Ratio of Banks: On the Conept of Structural Positions

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  • Mitsuhiro Fukao

    (Manager and Senior Economist, International Finance Division, International Department, Bank of Japan)

Abstract

For risk control purposes, the foreign exchange position of banks is often divided into two: the dealing position and the structural position. This paper analyzes the reasons for such a separation and demonstrates that the claims and obligations that are treated as structural have different risk characteristics than those pertaining to the dealing positions. Moreover, for banks with large foreign currency assets, we show that it is advantageous to hold certain open long positions in the same currency in order to insulate capital-asset ratios against a depreciation of the domestic currency, which provides a theoretical explanation to the traditional treatment of foreign investment as a structural item.

Suggested Citation

  • Mitsuhiro Fukao, 1991. "Exchange Rate Movements and Capital-Asset Ratio of Banks: On the Conept of Structural Positions," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 9(2), pages 91-104, September.
    • Handle: RePEc:ime:imemes:v:9:y:1991:i:2:p:91-104
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    Cited by:

    1. Patrick McGuire & Goetz von Peter, 2012. "The Dollar Shortage in Global Banking and the International Policy Response," International Finance, Wiley Blackwell, vol. 15(2), pages 155-178, June.
    2. Carlos Cantú & Michael Chui, 2020. "Financial market development and financial stability," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial market development, monetary policy and financial stability in emerging market economies, volume 113, pages 19-38, Bank for International Settlements.

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