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2020 | OriginalPaper | Chapter

13. Banks’ Capital Adequacy

Author : Felix I. Lessambo

Published in: The U.S. Banking System

Publisher: Springer International Publishing

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Abstract

The primary function of capital is to support the bank’s operations, act as a cushion to absorb unanticipated losses and declines in asset values that could otherwise cause a bank to fail, and provide protection to uninsured depositors and debt holders in the event of liquidation. Capital regulation is particularly important because deposit insurance and other elements of the federal safety net provide banks with an incentive to increase their leverage beyond what the market—in the absence of depositor protection—would permit.

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previous chapter Banking Regulation Principles

next chapter Comprehensive Capital Analysis and Review (CCAR) and the Dodd–Frank Stress Testing

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For example, a bank providing a liquidity facility supporting 100% of the ABCP issued by an ABCP program and purchasing 20% of the outstanding ABCP of that program could recognize an overlap of 20% (100% liquidity facility + 20% CP held—100% CP issued = 20%).

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Banks that report under local GAAP may use the IFRS definition of intangible assets to determine which assets classify as intangible and thus required to be deducted.

Retained earnings and other comprehensive income include interim profit or loss.

The capital conservation buffer will be phased in between January 1, 2016, and year end 2018 becoming fully effective on January 1, 2019.

BIS (2016): Basel III Document Revisions to the Securitization Framework.

Bjorn Bjerke (2017): The international Comparative Legal Guide to Securitization, Chapter 4, p. 24.

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((x) exercise must be at the banks discretion (cannot be mandatory); (y) cannot be structured to provide credit enhancement or for investors to avoid losses; and (z) can only be exercisable when 10% or less of original underlying portfolio or issued securities remains).

A. Bailey (2014, July 10): The Capital Adequacy of Banks: Today’s Issue and What We Have Learned from the Past. Bank of England.

Title: Banks’ Capital Adequacy
Author: Felix I. Lessambo
Publisher: Springer International Publishing
Book: The U.S. Banking System
Print ISBN: 978-3-030-34791-8

Electronic ISBN: 978-3-030-34792-5

Copyright Year: 2020
DOI: https://doi.org/10.1007/978-3-030-34792-5_13