Chap_20_Cap_Adequate_SPRl2011

Chap_20_Cap_Adequate_SPRl2011 - Chap 20 Overview CAPITAL...

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-1 20-1 Chap 20 Overview CAPITAL ADEQUACY This chapter discusses the functions of capital, different measures of capital adequacy, current capital adequacy requirements and advanced approaches used to calculate adequate capital according to internal rating based models of credit risk. SPR-2011 Chap 20 pgs 612-627mid
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-2 20-2 Importance of Capital Adequacy Absorb unanticipated losses and preserve confidence in the FI SHOCK ABSORBER Protect uninsured depositors and other stakeholders Protect FI insurance funds and taxpayers Protect DI owners against increases in insurance premiums To acquire real investments in order to provide financial services
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-3 20-3 Capital and Insolvency Risk Capital net worth book value Market value of capital credit risk interest rate risk exemption from mark-to-market for banks’ securities losses
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-4 20-4 Capital and Insolvency Risk (continued) Book value of capital par value of shares surplus value of shares retained earnings loan loss reserve
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Chap_20_Cap_Adequate_SPRl2011 - Chap 20 Overview CAPITAL...

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