The euro area financial system took excessive risks during the global credit boom, which in some countries led to an unsustainable increase in credit, higher asset prices and housing booms. This process helped to fuel large imbalances within the euro area. Banks played a key role in channelling...

Traditionally, regulation of banks has focused on the riskentailed in bank loans. Loans are typically nontradedassets. In recent years, another component of bank assetshas become increasingly important: assets actively tradedin the financial markets.1 These assets form the “tradingbook” of a...