Part I The Elements of Bank Financial Supervision, 5 Bank Capital Requirements

2018 ◽  
Author(s):  
Gleeson Simon
Keyword(s):  
Stress Testing ◽  
Stress Test ◽  
Capital Requirements ◽  
Financial Supervision ◽  
Capital Requirement ◽  
Bank Capital ◽  
Leverage Ratio ◽  
The Third ◽  
The World ◽  
Probable State

This chapter begins by discussing the three overlapping capital requirements that banks are subject to. The first is the orthodox Basel capital requirement. The second is the Leverage Ratio, which is simply a non-risk-weighted capital requirement. The third is the stress test requirement. This has historically been the largest of the three. Stress testing identifies a particular probable state of the world, estimates the total loss which would occur if that state of the world were to eventuate, and requires capital sufficient to ensure that the bank retains sufficient capital after suffering the projected losses. The remainder of the chapter covers Pillar 2 assessment, capital floor, and capital buffers.

scholarly journals THE NEW CAPITAL ADEQUACY FRAMEWORK (BASEL III) OPTIONS AND ISSUES IN COMMERCIAL BANKS OF LITHUANIA

Ekonomika ◽  
2015 ◽  
Vol 93 (4) ◽  
pp. 119-134 ◽  
Author(s):  
Filomena Jasevičienė ◽  
Daiva Jurkšaitytė
Keyword(s):  
Banking Regulation ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
System Stability ◽  
Basel Iii ◽  
Management Problem ◽  
Bank Capital ◽  
Factors Influencing ◽  
Capital Adequacy Ratio ◽  
The World

Currently, banking is one of the most regulated activities in the world, because banks are the most important institutional units engaged in financial intermediation and affects not only the whole national economy of the country, but the global financial market as well. One of the key components of banking regulation are requirements expected for the bank capital, which prevent the bank from various unforeseen risks incurring substantial losses and are a sort of guarantee to maintain the financial system stability. For this reason, it is useful to find out what factors affect the capital adequacy ratio, and what measures the banks are going to take in order to meet the new capital requirements. The present research reveals the options of the implementation of the new system and the main problems faced by banks. The paper consists of four main parts: review of theory and literature, the research methodology of the factors influencing the capital adequacy, the study of factors influencing the capital adequacy ratio, and the capital adequacy management problem areas according to the Basel III requirements and conclusions.

International Standards for Bank Capital Exposures to CCPs and Derivatives

2020 ◽  
pp. 126-151
Author(s):  
Lucia Quaglia
Keyword(s):  
Capital Requirements ◽  
International Standards ◽  
Basel Iii ◽  
Real Economy ◽  
Bank Capital ◽  
Financial Industry ◽  
Leverage Ratio ◽  
The Us ◽  
Credit Valuation Adjustment ◽  
The Uk

The elemental regime on bank capital for derivatives encompassed the credit valuation adjustment (CVA), the leverage ratio, and bank exposures to CCPs. Like for other parts of Basel III, the US and the UK were pace-setters internationally, promoting relatively precise, stringent, and consistent rules. The EU agreed on the need for higher capital requirements, but worried about negative implications for the provision of credit to the real economy. Networks of regulators were instrumental in furthering agreement amongst and within jurisdictions. They also fostered rules consistency through formal and informal coordination tools amongst international standard-setting bodies. The financial industry mobilized in order to reduce the precision and stringency of capital requirements, pointing out the need to consider capital reforms in conjunction with other post-crisis standards, notably, margins.

Part I The Elements of Bank Financial Supervision, 2 Why Are Banks Supervised?

2018 ◽  
Author(s):  
Gleeson Simon
Keyword(s):  
Capital Requirements ◽  
Financial Supervision ◽  
Capital Regulation ◽  
Bank Capital ◽  
Banking Supervision ◽  
Risk Capital ◽  
The Public ◽  
Bank Capital Regulation ◽  
Bank Risks ◽  
Macroeconomic Environment

This chapter begins by setting out the Core Principles for Effective Banking Supervision produced by the Basel Committee in September 1997, reissued in a revised version in October 2006, and further revised in the light of the crisis in 2012. The 2012 revision of these principles focused on four major areas: corporate governance within banks; an obligation on supervisors to ensure that banks are appropriately prepared for resolution; an obligation for supervisors to assess bank risks in the context of the macroeconomic environment; and the idea that supervisors should have higher expectations of banks which are globally systemically significant than for other banks. The discussions then turn to capital regulation, constraints on bank capital regulation, quantum of bank capital requirements, whether the banking crisis proves that risk capital-based regulation failed, market crisis and regulation, and protecting the public from the consequences of bank failure.

scholarly journals Optimal Capital Requirements over the Business and Financial Cycles

2020 ◽  
Vol 12 (3) ◽  
pp. 139-174 ◽  
Author(s):  
Frederic Malherbe
Keyword(s):  
Banking Sector ◽  
Returns To Scale ◽  
Capital Requirements ◽  
Capital Requirement ◽  
Investment Efficiency ◽  
Bank Capital ◽  
The Social ◽  
Optimal Capital ◽  
Bank Capital Requirement ◽  
Lending Decisions

I study economies where banks do not fully internalize the social costs of their lending decisions, which leads to real overinvestment. The bank capital requirement that restores investment efficiency varies over time. During booms, more investment is desirable, so the banking sector must be allowed to expand. This suggests a loosening of the requirement. However, there is also more bank capital. Since the banking sector exhibits decreasing returns to scale, this suggests a tightening instead. I find that the latter effect, which I dub the “bank capital channel,” dominates: the optimal capital requirement is tighter during booms than in recessions. (JEL E32, E44, G21, G28, G32)

Part I The Elements of Bank Financial Supervision, 4 The Composition of Bank Capital

2018 ◽  
Author(s):  
Gleeson Simon
Keyword(s):  
Financial System ◽  
Financial Stress ◽  
Capital Requirements ◽  
Financial Supervision ◽  
Bank Capital ◽  
Tier 2 ◽  
Financial Health ◽  
Expected Loss ◽  
Regulatory Capital ◽  
Tier 1

This chapter discusses the concept of bank capital. The essence of regulatory capital requirements as originally conceived was to procure that banks had sufficient capital to absorb both expected and unexpected losses. However, recent market developments have indicated two different but important functions of capital. Going Concern Capital is that capital which can absorb losses, both when the firm is in a state of financial health and during periods of financial stress, thus maintaining market confidence in the financial system and avoiding disruption to depositors. Gone Concern Capital is that capital which absorbs losses on the failure of a firm, protecting depositors in a winding up or resolution. The remainder of the chapter covers Tier 1 and Tier 2 capital; deductions; bank holdings in banking, financial, and insurance entities; provisioning, expected loss and revaluation; and capital monitoring.

Regulating bank leverage

2018 ◽  
Vol 10 (2) ◽  
pp. 264-274 ◽  
Author(s):  
Alexander Bleck
Keyword(s):  
Design Methodology ◽  
Bank Regulation ◽  
Capital Requirements ◽  
Capital Regulation ◽  
Bank Capital ◽  
Content Type ◽  
Leverage Ratio ◽  
Risk Sensitive ◽  
Bank Capital Regulation ◽  
Ratio Rule

Purpose This paper aims to study the design of bank capital regulation and points out a conceptual downside of risk-sensitive regulation. The author argues that when a bank is better informed about its risk than the regulator, designing regulation is subject to the Lucas critique. The second-best regulation could be risk-insensitive, which provides an explanation for the leverage ratio as a backstop to risk-based capital requirements. This paper offers empirical predictions and implications for policy. Design/methodology/approach The argument in the paper is based on analytical results from mechanism design. Findings Optimal bank regulation could be risk-insensitive, as is observed in practice in the form of the leverage ratio rule. Originality/value Counter to conventional wisdom, the paper argues and provides a new explanation for why bank regulation should not be sensitive to the risk of the bank. The paper then offers empirical predictions and implications for policy.

Optimum Structure of the Banking Market: How Many Banks Are Necessary for Russia?

2006 ◽  
pp. 75-92 ◽  
Author(s):  
S. Moiseev
Keyword(s):  
Banking Sector ◽  
Optimum Structure ◽  
Population Number ◽  
The Third ◽  
Banking Market ◽  
The World ◽  
The Usa ◽  
Per Capita ◽  
The Empirical Analysis ◽  
Equilibrium Number

The number of classical banks in the world has reduced. In the majority of countries the number of banks does not exceed 200. The uniqueness of the Russian banking sector is that in this respect it takes the third place in the world after the USA and Germany. The paper reviews the conclusions of the economic theory about the optimum structure of the banking market. The empirical analysis shows that the number of banks in a country is influenced by the size of its territory, population number and GDP per capita. Our econometric estimate is that the equilibrium number of banks in Russia should be in a range of 180-220 units.

Overcoming “The Third Way” Concept

2006 ◽  
pp. 126-134
Author(s):  
L. Evstigneeva ◽  
R. Evstigneev
Keyword(s):  
Economic Research ◽  
Economic Uncertainty ◽  
Third Way ◽  
The Third ◽  
Linear Approach ◽  
The World ◽  
Non Linear

“The Third Way” concept is still widespread all over the world. Growing socio-economic uncertainty makes the authors revise the concept. In the course of discussion with other authors they introduce a synergetic vision of the problem. That means in the first place changing a linear approach to the economic research for a non-linear one.

Stress-testing Russian Banking System: Will Banks Need Government Assistance Again?

2010 ◽  
pp. 61-81 ◽  
Author(s):  
O. Solntsev ◽  
A. Pestova ◽  
M. Mamonov
Keyword(s):  
Stress Testing ◽  
Banking Sector ◽  
Stress Test ◽  
Banking System ◽  
Government Assistance ◽  
Methodological Issues ◽  
Loan Portfolio ◽  
Macroeconomic Indicators ◽  
Remote Stress ◽  
Capital Injections

The article analyzes factors that affect growth of the share of non-performing loans in the loan portfolio of Russian banks and proposes approaches for this share forecasting on the basis of dynamics of macroeconomic indicators. It also deals with methodological issues of remote stress-test of lending agencies. Using the results of conducted stress-test of Russian banks the authors assess their perspective capital needs in 2010 and estimate the share of government assistance in capital injections. Furthermore, the authors define the scale of vulnerable banks groups in the Russian banking sector.

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