Management of Banking and Financial Services, 4th Edition by Pearson

capital—risk, regulation and adequacy n 455

such residual risks are not adequately controlled,

the central bank may impose additional capital

charges under Pillar 2.

n To determine minimum capital requirement for a

bank, a four step process is to be followed.

  • Classify assets into risk categories and assign

risk-weights.

  • Convert off-balance sheet commitments and

guarantees to a notional on balance sheet ‘credit

equivalent’ (using CCF) and classify these in the

appropriate risk categories.

  • Multiplytherupeeamountofassetsineachrisk

category by the appropriate risk-weight. The re-

sult equals ‘risk-weighted ...