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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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Basel II

Recently, the Basel Committee on Banking Supervision has revised the capital adequacy regulation. Known as Basel II, it is discussed in Stage 8.

Key Points

  • Banks must obey the Basel Committee’s regulation on bank capital, which calls for an 8% capital requirement on risk-adjusted assets.

  • BIS ratio= capital adequacy ratio = Cooke ratio
     = (capital/weighted asset) ≥ 8%
  • The capital (defined by the BIS) consists of two parts: Tier 1 (core capital) and Tier 2 (supplementary capital).

  • Risk adjustment factors applying to positions (on- and off-balance sheet) range from 0% to 100%.

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