Credit Engineering for Bankers, 2nd Edition

Chapter 13 Capital Adequacy

Chapter Outline

• Functions of Bank Capital 311
• A Historical Perspective 314
  • Traditional Asset Categories 314
• The Basel Accords 315
• Accounting, Economic, and Regulatory Defined Value 316
  • Economic or Market Denominated Capital 316
• Regulatory Denominated Capital (Regulatory Accounting) 319
  • Tier 1 Capital 319
  • A Breakdown of Tier 1 Capital Components 320
    • Common Shareholder Equity 320
    • Perpetual Preferred Stock 320
    • Noncumulative Preferred Stock 321
    • Embedded Special Features in Preferred Issues 321
    • Convertible Perpetual Preferred Stock 321
    • Minority Interest in Equity Accounts of Consolidated Subsidiaries 321
  • Tier 1 Leverage Ratio 322
  • Tier 2 Supplemental Capital 323
  • Tier 3 Supplemental Capital 325
• Regulatory ...