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Wind-down of bank trading books

Author

Listed:
  • Santoni, Alessandro
  • Rossignol, Ghislain
  • Akhouen, Richard

Abstract

This article focuses on some of the operational aspects of winding down a bank’s trading book portfolio and discusses the hidden exit costs that can sometimes exist. The article provides a deep dive on valuation principles and exit strategies currently considered by industry practitioners when designing a solvent wind-down plan. It also provides the reader with an overview of key underpinning valuation or pricing concepts, such as ‘fair value’, ‘realisable value’ and ‘solvent wind-down (SWD) value’. JEL Classification: G12, G13, G14, G15, G17, G18, G32, G33, G34

Suggested Citation

  • Santoni, Alessandro & Rossignol, Ghislain & Akhouen, Richard, 2023. "Wind-down of bank trading books," Occasional Paper Series 316, European Central Bank.
    • Handle: RePEc:ecb:ecbops:2023316
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpops/ecb.op316~c92595e295.en.pdf
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    References listed on IDEAS

    as
    1. Michael J. Fleming & Asani Sarkar, 2013. "The failure resolution of Lehman Brothers," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 175-206.
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    More about this item

    Keywords

    bank’s trading book; crisis management; fair value; market risk; realisable value; recovery plan; resolution plan; solvent wind-down; solvent wind-down value;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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