Introduction

In this chapter we analyse a particular aspect of the position of banks in the securities market – that is, their role as investors on their own account. Such a role must be viewed from the perspective of the recent expansion of securities markets and of the progressive blurring of the old demarcation line between commercial and investment banking. However, the increasing interest shown by banks towards securities-related activities has not necessarily implied an increase in their securities holdings. In many cases, the closer relationship between banks and the market has resulted in a more important role for banks in areas such as new-issuing business, brokerage activity, market making activity and portfolio management, which do not require larger investments in securities on banks' own account.

The purpose of this work is to consider how the share of securities holdings in total bank assets has recently developed in some industrialised countries, why a bank decides to invest in securities, what the relations among such investment and other variables are, and whether there are relevant discrepancies in the behaviour of banks across different countries.

In Section 2, we consider the evolution of banks' securities holdings from a comparative point of view. In Section 3, the attention is focussed on a taxonomy of securities markets according to their structures. In Section 4, we study the time-series behaviour of bank deposits, loans and securities' investment in four countries, focussing on the cointegration and causality relationships among these variables.