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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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Asset weighting

To measure the asset base, the regulators decided in 1988 to take into account credit risk. Assets on the balance sheet together with bank commitments (the off-balance sheet transactions) are weighted by a factor indicative of their credit risk (going from 0% for non-risky OECD public debt to 100% for risky private debts).

Weighting rules for assets are shown in Figure 6.1. (Weighting for off-balance sheet items is given in the appendix at the end of this stage.)

Figure 6.1. Weighting rules for assets

Example

Let us take as an example the (slightly modified) e-Bank balance sheet.

Assets Liabilities and shareholders’ equity ...

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