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Basel IV and its impact on smaller banks' proprietary trading desks – particularly regarding capital buffers for certain asset classes.
Been trying to wrap my head around the Basel IV revisions, specifically how the new output floor and revamped RWA calculations will hit smaller institutions. My main concern is for those proprietary trading desks dealing in less liquid fixed income; will the capital requirements make some of these strategies practically unviable for regional banks compared to the tier 1 giants? Any insights from those who've run the numbers or are implementing these changes?
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It certainly seems like the larger banks will have an easier time absorbing those increased capital requirements, making it even more challenging for smaller players to compete in certain niches. Perhaps the real question is how many 'smaller' banks will simply decide that proprietary trading isn't worth the regulatory headache anymore.