# Part 2 Section D.1.5. Risk Measurement in Banks　銀行のリスク評価指標

## Risk Measurement in Banks

• The Basel Committee on Banking Supervision
• introduced a capital measurement system called Accord of 1998.
• Since 1998, the Basel Accord has been replaced with more complex capital adequacy measurement system known as Basel II
• Basel III is going to work alongside Basel I and Basel II, but the details are outside the scope
• Basel Accord
• Tier 1 capital: the bank’s core capital
• common stock
• retained earnings
• perpetual preferred stock (if it is non-redeemable and non-cumulative)
• Tier 2 capital: secondary capital
• undisclosed reserves
• revaluation reserves (increase in the value of an asset that has been reappraised)
• general provisions
• general loan-loss reserves
• hybrid debt capital instruments that combined characteristics of equity and debt
• subordinated term debt (debt that would be paid off in the event of default only after some other debt has been paid off)
• The amount of capital a bank has is used to calculate each bank’s Capital Adequacy Ratio (CAR).
• Risk Weighted Assets (RWA) is an adjusted total assets figure that recognizes that the different assets held by banks have different risk profiles.
• Risk weighing allows banks to adjust their total assets for purposes of calculating their CAR by “discounting” assets that are less risky.

$$\displaystyle \bf CAR = \frac{Tier~1~Capital + Tier~2~Capital}{RWA}$$

Where: