商业银行管理 peter rossChapter15

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Reasons for Capital Regulation
The underlying assumption is that the private marketplace does not correctly price the impact of systemic failures. Thus, the purpose of capital regulation is:
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Quick Quiz
• What forms of capital are in use today? What are the key differences between the different types of capital? • What are the most important and least important forms of capital held by U.S.-insured banks? How do small banks differ from large banks in the composition of their capital accounts and in the total volume of capital they hold relative to their assets? • What is the rationale for having the government set capital standards for financial institutions as opposed to letting the private marketplace set those standards?
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Types of Capital
• Common Stock • Preferred Stock • Surplus • Undivided Profits • Equity Reserves
▫ Prior to 1990, banks were required to maintain:
a primary capital-to-asset ratio of at least 5% to 6%, and a minimum total capital-to-asset ratio of 6%
•To Limit the Risk of Failures •To Preserve Public Confidence •To Limit Losses to the Federal Government Arising from Deposit Insurance Claims
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▫ Probability of being unable to raise cash when needed at reasonable cost ▫ Probability that changes in interest rates will adversely affect the value of net worth
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Relative Importance of Different Sources of Capital
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Defenses Against Risk
• Quality Management • Diversification ▫ Geographic ▫ Portfolio
• Deposit Insurance (increased from $100K to $250K in the Fall of 2008 through Dec 2009) • Owners’ Capital
• Subordinated Debentures • Minority Interest in Consolidated Subsidiaries • Equity Commitment Notes
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Tasks Performed By Capital
• The Basel Agreement of 1988 includes riskbased capital standards for banks in 12 industrialized nations; designed to:
▫ Encourage banks to keep their capital positions strong ▫ Reduce inequalities in capital requirements between countries ▫ Promote fair competition ▫ Account for financial innovations (OBS, etc.)
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The Basel Agreement
• Historically, the minimum capital requirements for banks were independent of the riskiness of the bank
Chapter Fifteen
The Management of Capital
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Key Topics
• The Many Tasks of Capital
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Key Risks in Financial Institutions Management
• Credit Risk • Liquidity Risk
▫ Probability of default on any promised payments of interest or principal or both
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The Basel Agreement
• A Bank’s Minimum Capital Requirement is Linked to its Credit Risk • Stockholders' equity is deemed to be the most valuable type of capital • Minimum capital requirement increased to 8% total capital to risk-adjusted assets • Capital requirements were approximately standardized between countries to ‘level the playing field‘ • Capital is divided into Two Tiers
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• Provides a Cushion Against Risk of Failure • Provides Funds to Help Institutions Get Started • Promotes Public Confidence (credit crisis 2007-2009 showed importance) • Provides Funds for Growth • Regulator of Growth • Role in Growth of Bank Mergers • Regulatory Tool to Limit Risk Exposure • Protects the Government’s Deposit Insurance System
• Capital and Risk Exposures • Types of Capital In Use • Capital as the Centerpiece of Regulation • Basel I and Basel II
• Planning to Meet Capital Needs
• Interest Rate Risk • Operational Risk
• Exchange Risk • Crime Risk
▫ Probability of adverse affect of earning源自文库 due to failures in computer systems, management errors, etc. ▫ Probability of loss due to fluctuating currency prices
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The Basel Agreement on International Capital Standards
An International Treaty Involving the U.S., Canada, Japan and the Nations of Western Europe to Impose Common Capital Requirements On All Banks Based in Those Countries