Under Japan's rules, instruments held for short-term resale, for profit from short-term price movements, for profit from arbitrage between markets, or to hedge any of these are classified in the trading book1. Types of instruments that go in the trading book are also specified, and instruments that fall under none of these go in the banking book2.

Under Basel 2.5, the boundary rested on a subjective test of "trading intent." That made it hard to interpret and left room for regulatory arbitrage between the two books3.

The FRTB draws the line by purpose of holding and by type of instrument, and generally prohibits moving instruments between the two books4.

Notes

  1. "銀行法第十四条の二の規定に基づき、銀行がその保有する資産等に照らし自己資本の充実の状況が適当であるかどうかを判断するための基準" (Standards for determining whether a bank's capital adequacy is appropriate in light of the assets it holds, under Article 14-2 of the Banking Act, our translation; Financial Services Agency Notice No. 19 of 2006, full text updated by the FSA on August 24, 2026) (in Japanese), Article 11-3, paragraph 1, page 55. ↩

  2. The same notice, Article 11-4, paragraph 1, page 57. ↩

  3. Financial Services Agency and Bank of Japan, "「マーケット・リスクの最低所要自己資本」の概要" (Overview of "Minimum capital requirements for market risk", our translation) (April 2016), page 3, "バーゼル 2.5 と未解決の課題" (Basel 2.5 and unresolved issues) (in Japanese). ↩

  4. The same overview, pages 4–6, "トレーディング勘定と銀行勘定の境界" (Boundary between the trading book and the banking book) and "勘定間の振替と内部取引" (Transfers between books and internal transactions). In the Japanese notice, Article 11-6, paragraph 1 (page 58) prohibits transfers between the books, and paragraph 2 sets the exceptions. ↩