How do you calculate core capital?

How do you calculate core capital?

It is calculated by dividing Tier-1 capital by a bank's average total consolidated assets and certain off-balance sheet exposures.

What is core capital and supplementary capital?

Tier 1 capital is a bank's core capital and includes disclosed reserves—that appears on the bank's financial statements—and equity capital. This money is the funds a bank uses to function on a regular basis and forms the basis of a financial institution's strength. Tier 2 capital is a bank's supplementary capital.

What is a Tier 1 capital ratio?

The Tier 1 capital ratio is the ratio of a bank's core equity capital to its total risk-weighted assets (RWA). Risk-weighted assets are the total of all assets held by the bank weighted by credit risk according to a formula determined by the Regulator (usually the country's central bank).

What is supplementary capital?

supplementary capital means general provisions which are held against future and current unidentified losses and are freely available to meet losses which subsequently materialize, and includes subordinated debt, cumulative and redeemable preferred stock, revaluation reserves on fixed assets, and any other form of ...

What is the difference between Basel 2 and 3?

The key difference between Basel 1 2 and 3 is that Basel 1 is established to specify a minimum ratio of capital to risk-weighted assets for the banks whereas Basel 2 is established to introduce supervisory responsibilities and to further strengthen the minimum capital requirement and Basel 3 to promote the need for .../span>

What does Icaap stand for?

Internal Capital Adequacy Assessment Process

What are Pillar 2 requirements?

The Pillar 2 Requirement (P2R) is a bank-specific capital requirement which applies in addition to, and covers risks which are underestimated or not covered by, the minimum capital requirement (known as Pillar 1). The P2R is binding and breaches can have direct legal consequences for banks./span>

What is the SREP?

Specifically, the SREP verifies whether all risks have been identified, measured and backed with adequate capital. ... Within the SREP framework, supervisors check banks' self-assessment against regulatory requirements and assess whether banks' own risk assessment is complete and adequately conservative.

What is Pillar II?

The Pillar 2 supervisory review process is an integral part of the Basel Framework. It is intended to ensure that banks not only have adequate capital to support all the risks in their business but also develop and use better risk management techniques in monitoring and managing these risks.

What is pillar 2A?

Pillar 2A requires banks to hold extra prudential capital over and above the Pillar 1 amounts held for credit, market and operational risk, for instance against concentration risk, counterparty risk and interest rate risk in the banking book./span>

What is supervisory review?

Importance of supervisory review The supervisory review process recognises the responsibility of bank management in developing an internal capital assessment process and setting capital targets that are commensurate with the bank's risk profile and control environment.

What are minimum capital requirements?

Regulatory capital is the minimum capital requirement as demanded by the regulators; it is the amount a bank must hold in order to operate. ... Regulatory capital is a standardised calculation for all banks, although, there would be differences to various regulatory regimes.

What is Srep in banking?

Supervisory Review and Evaluation Process (SREP) Pillar 1. While following a standard methodology, SREP's focus is determined by specific banks' potential impact on the financial system, their riskiness and their financial and organizational status.

What is the overreaching aim of Basel III?

Overview. The Basel III standard aims to strengthen the requirements from the Basel II standard on bank's minimum capital ratios. In addition, it introduces requirements on liquid asset holdings and funding stability, thereby seeking to mitigate the risk of a run on the bank.

What is Basel full form?

The Basel Committee - initially named the Committee on Banking Regulations and Supervisory Practices - was established by the central bank Governors of the Group of Ten countries at the end of 1974 in the aftermath of serious disturbances in international currency and banking markets (notably the failure of Bankhaus ...

What Basel III means for banks?

reserve capital on hand

What are Basel 3 bonds?

The bonds qualify as tier II capital of the bank, and has a face value of Rs 10 lakh each, bearing a coupon rate of 6.