Royal Bank Scotland cuts commodities trading risk

Royal Bank of Scotland or RBS cut its commodities trading risk in the third quarter, in line with a wider trend at major banks to scale back exposure in expectation of a financial regulatory crackdown. RBS's financial results on Friday showed the bank's commodities trading division had a daily average Value at Risk (VaR) of 8.9 million pounds ($14.4 million) in the third quarter, down by 7.8 million pounds year-on-year.

Overall RBS posted a third-quarter operating loss of 132 million pounds, with its earnings wiped out by a charge of 858 million in relation to movements in the fair value of the group's own debt. Revenue from investment banking fell due to lower trading volumes and volatility. RBS's average total and commodities VaR by quarter

VaR is an industry gauge of how much money a bank can lose on any given day by its trades in a particular asset class. Like most European banks, RBS's VaR takes into account 99 percent of potential scenarios.

Although RBS scaled back its exposure in the commodities market, its total VaR, which factors in the risk from changes in interest rates, exchange rates, credit spreads and equity prices, rose to 213.1 million pounds from 165.1 million in the previous quarter.

The part-nationalised bank has trimmed its commodities trading risk as a percentage of total VaR for four months in a row.

Other banks such as BNP Paribas (Paris: FR0000131104 - news) , Goldman Sachs (NYSE: GS - news) and Credit Suisse have also reduced their commodities VaR as tighter financial regulation looms over Wall Street.

The Volcker Rule, passed in July in the United States, already bars banks from using more than 3 percent of their capital for trading on their account in partnerships and assets that include commodities.