risk-based capital requirement

risk-based capital requirement

Evaluation of the capital adequacy of a financial institution according to the amount of risk attached to each type.One dollar in cash is much less risky than an unsecured promissory note for $1 from a con artist.Everything in between is a matter of degree.That is the premise that forms the basis of risk-based capital requirements.The Board of Governors of the Federal Reserve System sets the requirements for American financial institutions.This impacts the sizes and types of real estate loans financial institutions are willing to make.Internationally,the Basel II Accord provides guidelines for measuring risk when evaluating capital.

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But they suggest--as a better safeguard against Knightian uncertainty--a single, risk-based capital requirement that averages across plausible risk models.
The new law stipulates that listed insurance companies must have capital greater than QAR100 million or their risk-based capital requirement, while unlisted insurance companies must have capital higher than the figure set by the QCB or their risk-based capital requirement.
We have been very much against the idea of establishing for pension funds and other institutions for occupational retirement provision (IORPs) a European risk-based capital requirement framework similar to the one set out in the Solvency II legislation for insurance companies.
Regulation is imposed in the form of a risk-based capital requirement. Banks have incentives to increase risk procyclically by expanding the risky asset portfolio.
This minimum required amount is only expected to apply to insurers at the smaller end of the market as the risk-based capital requirement of the solvency standards will generally drive a Minimum Solvency Capital requirement well in excess of the stated minimum amounts.
Recognizing this problem, the Basel Committee has now introduced a simple, non-risk based leverage ratio to supplement the risk-based capital requirement that captures risks arising from total assets, he observed.
capital formula to determine the risk-based capital requirement for the
In particular, he showed that because an increase in the risk-based capital requirement increases a bank's loan-funding cost (competition limits the bank's ability to pass this cost along to borrowers), therefore a small rise in the risk-based capital requirement for banks elevates the endogenously determined probability that a borrower will be denied credit by the entire banking system, thus reducing aggregate lending.
There was also a tier 1 risk-based capital requirement that became effective at the time equal to 3.25% of risk-weighted assets.
This is because with a binding risk-based capital requirement, a bank cannot expand lending without additional capital.
Using MPF 125, for example, a seller-member faces a 25 basis point risk-based capital requirement for credit risk, reflecting the total amount of the secondary credit enhancement.

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