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Tier 2 Capital
Tier 2 capital, or supplementary capital, includes a number of important and legitimate constituents of a bank's capital requirement.By definition of Bank for International Settlements. These forms of banking capital were largely standardized in the Basel I accord, issued by the Basel Committee on Banking Supervision and left untouched by the Basel II accord. National regulators of most countries around the world have implemented these standards in local legislation. In the calculation of regulatory capital, Tier 2 is limited to 100% of Tier 1 capital. Undisclosed reserves Undisclosed reserves are not common, but are accepted by some regulators where a bank has made a profit but the profit has not appeared in normal retained profits or in general reserves of the bank. Undisclosed reserves must be accepted by the bank's supervisory authorities. Many countries do not accept undisclosed reserves as an accounting concept or as a legitimate form of capital. Revaluation reserves A rev ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Capital Requirement
A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital adequacy ratio of equity as a percentage of risk-weighted assets. These requirements are put into place to ensure that these institutions do not take on excess leverage and risk becoming insolvent. Capital requirements govern the ratio of equity to debt, recorded on the liabilities and equity side of a firm's balance sheet. They should not be confused with reserve requirements, which govern the assets side of a bank's balance sheet—in particular, the proportion of its assets it must hold in cash or highly-liquid assets. Capital is a source of funds not a use of funds. Regulations A key part of bank regulation is to make sure that firms operating in the industry are prudently managed. The aim is to protect the firms themselves, their cust ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Bank For International Settlements
The Bank for International Settlements (BIS) is an international financial institution owned by central banks that "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work through its meetings, programmes and through the Basel Process – hosting international groups pursuing global financial stability and facilitating their interaction. It also provides banking services, but only to central banks and other international organizations. It is based in Basel, Switzerland, with representative offices in Hong Kong and Mexico City. History The BIS was established in 1930 by an intergovernmental agreement between Germany, Belgium, France, the United Kingdom, Italy, Japan, the United States, and Switzerland. It opened its doors in Basel, Switzerland, on 17 May 1930. The BIS was originally intended to facilitate reparations imposed on Germany by the Treaty of Versailles after World War I, and to act as the tru ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Basel I
Basel I is the first Basel Accord. It arose from deliberations by central bankers from major countries during the late 1970s and 1980s. In 1988, the Basel Committee on Banking Supervision (BCBS) in Basel, Switzerland, published a set of minimum capital requirements for banks. It is also known as the 1988 Basel Accord, and was enforced by law in the Group of Ten (G-10) countries in 1992. Background The Committee was formed in response to the messy liquidation of Cologne-based Herstatt Bank in 1974. On 26 June 1974 a number of banks had released Deutschmarks (the German currency) to the Herstatt Bank in exchange for dollar payments deliverable in New York City. Due to differences in the time zones, there was a lag in the dollar payment to the counterparty banks; during this lag period, before the dollar payments could be effected in New York, the Herstatt Bank was liquidated by German regulators. This incident prompted the G-10 nations to form the Basel Committee on Banking ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Basel Committee On Banking Supervision
The Basel Committee on Banking Supervision (BCBS) is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten (G10) countries in 1974. The committee expanded its membership in 2009 and then again in 2014. As of 2019, the BCBS has 45 members from 28 jurisdictions, consisting of central banks and authorities with responsibility of banking regulation. Overview The committee provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. The committee frames guidelines and standards in different areas – some of the better known among them are the international standards on capital adequacy, the Core Principles for Effective Banking Supervision and the Concordat on cross-border banking supervision. The committee's Secretariat is located at the Bank for International Settlements (BIS) in ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Basel II
Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. It is now extended and partially superseded by Basel III. The Basel II Accord was published in June 2004. It was a new framework for international banking standards, superseding the Basel I framework, to determine the minimum capital that banks should hold to guard against the financial and operational risks. The regulations aimed to ensure that the more significant the risk a bank is exposed to, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability. Basel II attempted to accomplish this by establishing risk and capital management requirements to ensure that a bank has adequate capital for the risk the bank exposes itself to through its lending, investment and trading activities. One focus was to maintain sufficient consistency of regulations so to limit competiti ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Tier 1 Capital
Tier 1 capital is the core measure of a bank's financial strength from a regulator's point of view.By definition of Bank for International Settlements. It is composed of ''core capital'', which consists primarily of common stock and disclosed reserves (or retained earnings), but may also include non-redeemable non-cumulative preferred stock. The Basel Committee also observed that banks have used innovative instruments over the years to generate Tier 1 capital; these are subject to stringent conditions and are limited to a maximum of 15% of total Tier 1 capital. This part of the Tier 1 capital will be phased out during the implementation of Basel III. Capital in this sense is related to, but different from, the accounting concept of shareholders' equity. Both Tier 1 and Tier 2 capital were first defined in the Basel I capital accord and remained substantially the same in the replacement Basel II accord. Tier 2 capital represents "supplementary capital" such as undisclosed reserve ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Risk-Weighted Asset
Risk-weighted asset (also referred to as RWA) is a bank's assets or off-balance-sheet exposures, weighted according to risk. This sort of asset calculation is used in determining the capital requirement or Capital Adequacy Ratio (CAR) for a financial institution. In the Basel I accord published by the Basel Committee on Banking Supervision, the Committee explains why using a risk-weight approach is the preferred methodology which banks should adopt for capital calculation: *it provides an easier approach to compare banks across different geographies *off-balance-sheet exposures can be easily included in capital adequacy calculations *banks are not deferred from carrying low risk liquid assets in their books Usually, different classes of assets have different risk weights associated with them. The calculation of risk weights is dependent on whether the bank has adopted the standardized or IRB approach under the Basel II framework. Some assets, such as debentures, are assigned ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Standardized Approach (credit Risk)
The term standardized approach (or standardised approach) refers to a set of credit risk measurement techniques proposed under Basel II, which sets capital adequacy rules for banking institutions. Under this approach the banks are required to use ratings from external credit rating agencies to quantify required capital for credit risk. In many countries this is the only approach regulators approved in the initial phase of Basel II implementation. The Basel II accord proposes to permit banks a choice between two broad methodologies for calculating their capital requirements for credit risk. The other alternative is based on internal ratings. Reforms to the standardised approach to credit risk are due to be introduced under the Basel III: Finalising post-crisis reforms. The summary of risk weights in standardized approach There are some options in weighing risks for some claims, below are the summary as it might be likely to be implemented. NOTE: For some "unrated" risk weights ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Advanced IRB
The term Advanced IRB or A-IRB is an abbreviation of advanced internal ratings-based approach, and it refers to a set of credit risk measurement techniques proposed under Basel II capital adequacy rules for banking institutions. Under this approach the banks are allowed to develop their own empirical model to quantify required capital for credit risk. Banks can use this approach only subject to approval from their local regulators. Under A-IRB banks are supposed to use their own quantitative models to estimate PD (probability of default), EAD (exposure at default), LGD (loss given default) and other parameters required for calculating the RWA (risk-weighted asset). Then total required capital is calculated as a fixed percentage of the estimated RWA. Reforms to the internal ratings-based approach to credit risk are due to be introduced under the Basel III: Finalising post-crisis reforms. Some formulae in internal-ratings-based approach Some credit assessments in standardised a ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The debt may be owed by sovereign state or country, local government, company, or an individual. Commercial debt is generally subject to contractual terms regarding the amount and timing of repayments of principal and interest. Loans, bonds, notes, and mortgages are all types of debt. In financial accounting, debt is a type of financial transaction, as distinct from equity. The term can also be used metaphorically to cover moral obligations and other interactions not based on a monetary value. For example, in Western cultures, a person who has been helped by a second person is sometimes said to owe a "debt of gratitude" to the second person. Etymology The English term "debt" was first used in the late 13th century. The term "debt" com ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Equity (finance)
In finance, equity is ownership of assets that may have debts or other liabilities attached to them. Equity is measured for accounting purposes by subtracting liabilities from the value of the assets. For example, if someone owns a car worth $24,000 and owes $10,000 on the loan used to buy the car, the difference of $14,000 is equity. Equity can apply to a single asset, such as a car or house, or to an entire business. A business that needs to start up or expand its operations can sell its equity in order to raise cash that does not have to be repaid on a set schedule. In government finance or other non-profit settings, equity is known as "net position" or "net assets". Origins The term "equity" describes this type of ownership in English because it was regulated through the system of equity law that developed in England during the Late Middle Ages to meet the growing demands of commercial activity. While the older common law courts dealt with questions of property title, eq ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Liquidation
Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation. The process of liquidation also arises when customs, an authority or agency in a country responsible for collecting and safeguarding customs duties, determines the final computation or ascertainment of the duties or drawback accruing on an entry. Liquidation may either be compulsory (sometimes referred to as a ''creditors' liquidation'' or ''receivership'' following bankruptcy, which may result in the court creating a "liquidation trust") or voluntary (sometimes referred to as a ''shareholders' liquidation'', although some voluntary liquidations are controlled by the creditors). The term ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
