Double Gearing

Double Gearing

The act or practice of two or more companies pooling their risk in which each places capital in the other company. In one of the most common examples of double gearing, an insurance company buys shares in a bank, and, in exchange, the bank extends credit to the insurance company.
References in periodicals archive ?
Double Gearing describes situations where two institutions use shared capital to protect against risk occurring in separate entities.
In what is known as capital double gearing, many Japanese insurers own the shares of Japanese banks, while in turn, those banks have invested in the capital base of the insurers.
S&P believes the concentration risks stemming from capital double gearing have further weakened the already deteriorated capitalization and financial flexibility of the five life insurers,'' it said.
As for the future impact of state solvency supervision, by 2001 all states in the European Union must enact a directive to eliminate the double gearing of capital funds in insurance groups.
As Standard & Poor's warned in its report "Capital Double Gearing Creating Concentration Risk For Japanese Financial Institutions," published on Sept.
The downgrades were based on deterioration in the insurers' capitalization caused by the slump in the domestic stock market, and increased asset risk on their excessive exposure to weakened domestic banks (see Standard & Poor's article: "Capital Double Gearing Creating Concentration Risk For Japanese Financial Institutions" published Sept.