The Moorad Choudhry Anthology, + Website

CHAPTER 8Regulatory Capital and the Capital Adequacy Assessment Process

“But sometimes I decide that it's time to jut out, to moan about a bill, to make a stand, to damn well not blend in any more. To dare, to take a leap, do those things that the Hollywood stars tell you to do with the idealistic backing music – it worked for them…so yes, I was going to make up for those times… .look the world in the eye, set my jaw with a sense of character. And man, did I pay the price.”

—Laurie Tallack, Not a Natural Pilot, CreateSpace Independent Publishing Platform, 2015

REGULATORY CAPITAL FRAMEWORK

The ultimate responsibility for the management of regulatory capital in a bank over the cycle – in effect, in perpetuity (because we have yet to discover, anywhere in the world, a bank whose mission statement includes an objective of winding itself up at some point in the future) – lies with the Board. Therefore every aspect of this responsibility needs to be addressed with care, expertise, and sound judgement, from the Board of Directors downwards. The risk management framework in a bank, within which regulatory capital adequacy is managed, is essentially the corporate governance committee organisation structure. It's such an important topic that we have devoted an entire chapter to it (Chapter 17), and readers may want to tackle that one before proceeding here.

After that, regulatory capital management and liquidity risk management are the important topics to master. This chapter looks ...