Banking book

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Fixed Assets ( bank book , rare: the banking book or the banking book . English banking book ) is in Banking of the bank regulatory term for all exposures that a credit institution is not the trading book may assign. The trading book is therefore a complementary term.

General

When banks conduct banking business, they have to decide how long they want to keep acquired banking business in their portfolio (i.e. in the bank balance sheet ). This intention is achieved through short, medium or long term inventory. If you only want to keep financial transactions in stock for a short time, it is usually based on a speculative trade. When granting a long-term investment loan to a bank customer, however, this must be answered in the negative. In order to systematize these different business motives, previously § 1a KWG a. F. the banks differentiate between trading and banking books. According to this, the only short-term transactions with the intention of a trading profit had to be reported in the trading book. All other financial transactions were to be transferred to the banking book.

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According to Section 1a (2) of the German Banking Act (KWG) old version, the banking book used to include “all transactions of an institution that are not included in the trading book”. The Capital Adequacy Ordinance (CRR), which replaced this omitted provision in January 2014, very often mentions the term banking book, but does not define it. According to the principle of exclusion, it can be assumed that the banking book will continue to include all positions that do not belong to the trading book in accordance with Art. 4 Para. 1 No. 86 CRR. Thereafter, the banking book is a residual. According to Art. 390 Para. 4 CRR, the total risk positions of a bank are determined by adding together the trading and banking books. Conversely, all balance sheet items are to be shown in the banking book that are not only held for short term for proprietary trading purposes and exclusively serve customer business. With regard to the allocation to the banking book or trading book, there are no significant changes to the previous regulation. According to § 340a HGB in conjunction with § 247 Paragraph 2 HGB, the purpose at the time of acquisition is decisive for the allocation .

The most important line of business in the banking book is the lending business . The banking book also includes those positions for which no short-term price or interest rate fluctuations are exploited and which, due to their construction and marketability, are not tradable. The following should be mentioned in particular:

All bank loans , including short-term ones, are to be allocated to the banking book. For the banking book also includes trading transactions for the purpose of benchmark formation ( Treasury ) to be completed and securities purchases for the liquidity reserve , even if they are held at short notice. Securities in the liquidity reserve under commercial law (Section 340f Paragraph 1 Clause 1 HGB) are to be allocated to the banking book. Hedging transactions for banking book positions ( e.g. interest rate swaps to hedge interest rate risks from loans) must be taken into account in the banking book. The repurchase of own bonds can only be viewed as an additional service to a banking book business ( deposit business in the broader sense) if it is not used for speculative secondary purposes. Instruments that are treated like fixed assets (Section 340c (2) HGB) must always be assigned to the banking book.

Accounting

The medium and long-term terms that are relevant for the banking book are, according to Section 9 (2 ) of the Financial Institutions Accounting Ordinance (RechKredV), residual terms of more than one year to five years (medium-term) or more than five years (long-term). Short-term banking transactions are also part of the banking book if they are not used for trading. If short-term transactions are customer transactions, an allocation to the banking book is required. In the case of medium to long-term holdings, an allocation to the banking book is generally possible. According to IAS 39.45, all banking transactions are to be given an IFRS category , which clarifies this holding intention. In the banking book, the categories Loans & Receivables (L&R) and Held to Maturity (HtM) come into consideration. The banks have the firm intention and ability (IAS 39.9) to hold the loans until they mature . This is underpinned by the fact that credit claims are naturally not as fungible as claims securitized in bonds , even if their tradability ( transferable loan facilities ) is made easier by credit trading . If loans are no longer to remain in the portfolio until they mature , they are assigned the Available for Sale category .

Trading and banking book

The trading book and the banking book must be clearly identifiable at all times and must therefore be kept separate from one another. It is thus important in accounting marking or at least all times discoverability of balance sheet and off-balance sheet trading book positions to be ensured.

According to commercial law, reclassifications of the investment portfolio to the trading portfolio according to Section 340e Paragraph 3 Clause 2 HGB are not permitted; conversely, according to Clause 3 of this provision, they are only permitted "if exceptional circumstances, in particular serious impairment of the tradability of the financial instruments, lead to the abandonment of the trading intention by the Run a credit institution ". This includes fundamental market disruptions such as during the financial crisis from 2007 .

Reclassifications were in Section 1a (4) KWG a. F. regulated. Reclassifications are the transfer of positions originally shown in the trading book to the banking book or vice versa, which is only permitted in exceptional cases. Depending on its earnings position , it can be tax-advantageous for a bank to allocate risk positions either to the trading book or the banking book in order to realize tax-free profits or allowable losses . A reallocation must be carried out under banking law if the prerequisites for attributing the corresponding item to the trading book or banking book no longer apply. Otherwise, positions in the trading book may only be reallocated to the banking book or vice versa if there is a conclusive reason for the reallocation. This is intended to prevent banks from using arbitrary reallocations to their advantage. In the case of transactions with third parties that are triggered by a customer's order ( customer transactions ), in which the service aspect is in the foreground and which are therefore included in the banking book, the transactions in question must be reclassified to the trading book if they have not been traded on at the latest by the close of business ( Closing out ). If the market risk position created in this way is partially or fully closed by a hedging transaction, this is treated as a resale under banking supervisory law and assessed as a closing out. The service character of customer transactions is generally called into question when speculative purposes are at least pursued. Reclassifications are to be explained in the appendix in accordance with Section 35 (1) No. 6b RechKredV .

Differentiation from the trading book

Commercial law regulations, which prescribe an allocation to fixed or current assets , apply to accounting non-banks . Interestingly, the HGB assumes an exactly opposite principle of exclusion. Conversely to the definition of fixed assets in Section 247 of the German Commercial Code (HGB), assets that are not intended to be permanently used as fixed assets for business operations are to be shown under current assets. According to the structure in § 266 HGB, the following four items belong to the current assets:

According to this, the assets with a permanent purpose (§ 247 HGB) belong to the fixed assets, while in the case of credit institutions the commercial law criteria that apply to the delimitation of the securities, tradable receivables and shares of the trading portfolio, the criteria for the delimitation of the trading book according to § 1a para. 1 KWG a. F. Are similar; the objective interests are largely identical in both regulatory circles. This avoids burdening the credit institutions with additional "shadow accounting" under banking supervisory law, unless the following exceptions exist:

  • the credit institution can at its discretion - also for the securities in the liquidity reserve - make an allocation that deviates from the commercial law approach if there are plausible, objectively verifiable reasons for this;
  • an allocation according to the CRR that deviates from the commercial law approach is required - without the institution's discretion - if banking supervisory reasons require a different assessment in individual cases. However, the assignment made by the institute is relevant until the BAFin objects to it in individual cases or generally announces a different decision.

In addition, it can be assumed that the fixed assets within the meaning of the HGB and the banking book within the meaning of the KWG are in sync, even if the intention to resell them in the short term is not a legal requirement for allocation to the trading portfolio in accordance with Section 340c (1) HGB.

Settlement risks exist in the banking book, but also in the trading book. This is understood to mean the transactions that have not been fulfilled by either side after a fulfillment time has elapsed, which can result in changes in the value of the financial instruments traded . In contrast to advance performance risks , which are only to be taken into account in the trading book, in the case of settlement risks , the transactions were not fulfilled by both contractual partners at the scheduled time. This can result in changes in the value of the traded financial instruments, from which a potential loss can also arise in the banking book.

Non-trading book institute

A non-trading book institute does not strive to achieve short-term proprietary trading success within the meaning of Section 340 c (1) HGB. At these institutions, all positions are assigned to the banking book without exception, and a trading book is kept without a position. The requirements for backing market price risk positions in the trading book therefore do not apply to this group of institutions.

Individual evidence

  1. ↑ Oliver Everling / Karl-Heinz Goedeckemeyer, Bankenrating: Normative Bankenordnung in der Finanzmarktkrise , 2015, p. 210
  2. ^ Coopers & Lybrand Deutsche Revision, Sixth KWG amendment and new principle I , 1998, p. 78
  3. ↑ Jörg Gogarn, MaRisk Handbook , 2015, BTR 2.1 Item 4
  4. ↑ Edgar Löw (ed.), Accounting for banks according to IFRS: Practice-oriented individual presentations , 2005, p. 479
  5. ↑ Gerrit Adrian, Corporate Tax Law , 2010, p. 854
  6. ↑ a b BaKred circular 17/1999 of December 8, 1999, allocation of the holdings and transactions of the institutes to the trading book and the banking book , p. 9
  7. ↑ Bundestag printed matter 16/12407 of March 24, 2009, draft of the Accounting Law Modernization Act - BilMoG , p. 92