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

Risk Measurement in Banks

  • Capital adequacy
  • 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)
  • Capital Adequacy Ratio (CAR)
    • 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.

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

CAR = Capital Adequacy Ratio
RWA = Risk Weighted Assets