Covenant and Risk Weighted Assets: Difference between pages

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1.
''Bank supervision - capital adequacy''.


A formal legal agreement to take, or not to take, certain actions.
(RWAs).


Risk Weighted Assets provide a measure of the total scale and risk of a regulated bank's activities, against which the bank is required to hold minimum levels of regulatory capital.


2.


In loan documentation, a promise given by the borrower to take, or not to take, specified actions relevant to the borrower's creditworthiness.
In simple terms, assets are multiplied by appropriate risk weightings - historically ranging from 0% to 100% depending on the level of risk - and aggregated.


For example, a ''financial covenant'' to maintain a minimum ratio of net worth to debt.
Other risks, including operational risk, are also appropriately evaluated and risk weighted, adding additional RWAs to the regulatory total.




3.
The calculation of RWAs has been increasingly refined over time.


In relation to pension funds, the credit strength of the sponsoring employer and its commitment to the pension fund.
Risk weights may, in some cases, be derived from individual banks' own internal risk models, subject to the regulator's approval.


Other risk weightings are determined on a standardised basis for all banks.


== See also ==
* [[Accounting exposure]]
* [[Asset cover]]
* [[Breach of covenant]]
* [[Compliance]]
* [[Condition]]
* [[Contingent covenant]]
* [[Covenant trigger]]
* [[Covenant-lite]]
* [[Credit risk]]
* [[Event of default]]
* [[Financial covenant]]
* [[Generally accepted accounting principles]]
* [[Incurrence covenant]]
* [[Interest cover]]
* [[Loan agreement]]
* [[Maintenance covenant]]
* [[Net worth]]
* [[Non-financial covenant]]
* [[Representation]]
* [[Restrictive covenant]]
* [[Trigger event]]
* [[Waiver]]
* [[Warranty]]


 
==See also==
==Other links==
*[[Bank supervision]]
[http://www.treasurers.org/node/8842 Treasury Essentials: Covenants, The Treasurer, March 2013]
*[[Capital]]
 
*[[Capital adequacy]]
[[Category:Long_term_funding]]
*[[CCF]]
[[Category:Manage_risks]]
*[[Off balance sheet risk]]
[[Category:Risk_frameworks]]
*[[Operational risk]]
[[Category:Treasury_operations_infrastructure]]
*[[Pillar 1]]

Revision as of 16:12, 11 November 2016

Bank supervision - capital adequacy.

(RWAs).

Risk Weighted Assets provide a measure of the total scale and risk of a regulated bank's activities, against which the bank is required to hold minimum levels of regulatory capital.


In simple terms, assets are multiplied by appropriate risk weightings - historically ranging from 0% to 100% depending on the level of risk - and aggregated.

Other risks, including operational risk, are also appropriately evaluated and risk weighted, adding additional RWAs to the regulatory total.


The calculation of RWAs has been increasingly refined over time.

Risk weights may, in some cases, be derived from individual banks' own internal risk models, subject to the regulator's approval.

Other risk weightings are determined on a standardised basis for all banks.


See also