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What is a Banking Book?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 17 September 2016
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    Conjecture Corporation
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A banking book is a type of accounting record or book that is used to track all securities that are currently not being actively traded by a specific institution. Typically, the securities that are logged into this type of accounting book are intended to be held for an extended period of time, with the expectation that those assets will provide a certain amount of return in the interim. By using this approach to managing the securities, it is much easier to identify which holdings are currently considered eligible for trading, and which are to be held until at least the next periodic review.

Many institutions will actually keep a companion to the banking book, known as a trading book. The purpose of this second accounting record is to create and maintain a roster of investments that are currently being actively traded. While both books provide a means of recording the ups and downs of the value of investments based on the performance of the market, the trading book is a valuable tool used in determining not only what assets to trade, but also when to trade them.

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From time to time, securities that are tracked in a banking book or a trading book will be transferred from one record to the other. For example, if an asset currently tracked in the banking book is determined to no longer be worth holding onto for the long-term, the asset is removed from the banking book and moved to the tracking book, where it becomes eligible for trading. At the same time, if an asset that has typically been considered right for trading is suddenly perceived as being one that is worth holding onto for the long-term, the security is transferred to the banking book, where it remains until events in the marketplace indicate that a change is in order.

Any type of securities can be included in the data recorded in a banking book. Among the more common examples of investments likely to be tracked in this type of record are bond issues with a relatively long duration. Assuming the issuer of the bond is stable and there is not much chance of the bond being called early, the investor will likely track the bond’s progress toward maturity via the banking book. Along with bonds, stock issues that are purchased with the intent of holding onto them for extended period of time, often owing to the consistent performance of the securities in a variety of market situations, may also be tracked using this type of recording method.

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