imported>Doug Williamson |
imported>Doug Williamson |
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| (EAR).
| | Primary Loss Absorbing Capital. |
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| __TOC__
| | Used, especially in the UK, to refer to equity and bail-in-able long term debt of banks that can be written down in case of financial distress. It includes both equity and bail-in-able long-term debt. |
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| A quoting convention under which interest at the quoted rate is calculated and added to the principal annually.
| | The great majority of bank capital in future must be PLAC, in contrast with Secondary Loss Absorbing Capital (SLAC). |
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| EAR is the most usual conventional quotation basis for instruments with maturities of greater than one year.
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| | == See also == |
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| 2.
| | *[[Capital adequacy]] |
| | | *[[Loss absorbing capacity]] |
| A conventional measure which expresses the returns on different instruments on a comparable basis.
| | *[[MREL]] |
| | | *[[Principal write down]] |
| The EAR basis of comparison is the ''equivalent'' rate of interest paid and compounded annually, which would give the same all-in rate of return as the instrument under review.
| | *[[TLAC]] |
| | | *[[Total Loss Absorbing Capacity]] |
| For this reason, 'EAR' is sometimes expressed as <u>equivalent</u> annual rate.
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| ==Conversion formulae==
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| ====Nominal annual rate to periodic rate====
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| r = R / n
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| ''Where:''
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| r = periodic interest rate or yield
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| R = nominal annual rate
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| n = number of times the period fits into a conventional year (for example, 360 or 365 days)
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| ====Periodic interest rate or yield to Effective annual rate====
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| EAR = (1 + r)<sup>n</sup> - 1
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| | *[[SLAC]] - Secondary Loss Absorbing Capital |
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| ''Where:''
| | *[[GCLAC]] also referred to as GLAC - gone-concern loss absorbing capital |
| | *[[MCT]] |
| | *[[Bailin]] |
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| EAR = effective annual rate or yield
| | [[Category:Compliance_and_audit]] |
| | | [[Category:Risk_frameworks]] |
| r = periodic interest rate or yield, as before
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| n = number of times the period fits into a calendar year
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| ==Calculating EAR from GBP overnight quote==
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| <span style="color:#4B0082">'''Example: EAR from overnight quote'''</span>
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| GBP overnight interest is conventionally quoted on a simple interest basis for a 365-day year.
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| So GBP overnight interest quoted at R = 5.11% means:
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| (i)
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| Interest of:
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| r = R / n
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| r = 5.11% / 365
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| r = 0.014% (= 0.00014) is paid per day.
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| (ii)
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| The ''equivalent'' effective annual rate is calculated from (1 + r).
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| 1 + r = 1 + 0.00014 = 1.00014
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| EAR = (1 + r)<sup>n</sup> - 1
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| EAR = 1.00014<sup>365</sup> - 1
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| EAR = '''5.2424%'''.
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| == See also ==
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| * [[ACT/365 fixed]]
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| * [[Annual effective rate]]
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| * [[Annual effective yield]]
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| * [[Annual percentage rate]]
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| * [[Calculating effective annual rates]]
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| * [[Capital market]]
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| * [[Certificate in Treasury Fundamentals]]
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| * [[Certificate in Treasury]]
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| * [[Continuously compounded rate of return]]
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| * [[Effective annual yield]]
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| * [[Equivalent Annual Rate]]
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| * [[LIBOR]]
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| * [[Nominal annual rate]]
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| * [[Periodic discount rate]]
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| * [[Periodic rate of interest]]
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| * [[Periodic yield]]
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| * [[Rate of return]]
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| * [[Real]]
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| * [[Return]]
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| * [[Semi-annual rate]]
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