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Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition by Youssef F. Bissada, Jean Dermine

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Stage 6. The Capital Adequacy Regulation, Basel I

You found out in Stage 3 that one of the drivers of the return on equity (ROE) was the leverage factor, that is the debt/equity ratio.

As one could be tempted to increase leverage (that is, reduce equity and increase debt) to boost the reported ROE, central banks have devised international capital adequacy regulations.

As the new CFO, you must ensure that e-Bank meets this capital regulation at all times.

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