Capital adequacy and Idiosyncratic risk: Difference between pages

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imported>Doug Williamson
(Expand to refer to types of capital.)
 
imported>Doug Williamson
m (Space added.)
 
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Capital adequacy is the system of regulating banks (and other financial institutions) by requiring them to maintain minimum acceptable levels - and types - of capital, adequate to absorb their potential credit losses and other trading losses.
In the Capital Asset Pricing Model, the same as Diversifiable risk.
 
Also known as Specific risk or Unsystematic risk.




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The term 'capital adequacy' also refers to the prevailing minimum amount of risk weighted capital that banks are required to maintain in proportion to the risk assets that they assume, normally used in connection with the requirements laid down internationally by the Bank for International Settlements (BIS) and monitored by domestic central banks.
The concept is also important in bank regulation and stress testing. Regulated banks must be resilient both to shocks which are market-wide, and to shocks which are idiosyncratic or specific to the regulated entity.
 
Historically, the BIS capital adequacy standard was 8%.
 
Under the Basel III framework this standard is increased (strengthened) substantially - very roughly doubled - and its measurement is refined.  




== See also ==
== See also ==
* [[Bank for International Settlements]]
* [[Diversifiable risk]]
* [[Basel II]]
* [[Stress test]]
* [[Basel 2.5]]
* [[Basel III]]
* [[Capital Adequacy Directive]]
* [[Capital Requirements Directive]]
* [[Common equity]]
* [[Countercyclical buffer]]
* [[Economic capital]]
* [[IRB]]
* [[IRRBB]]
* [[GCLAC]]
* [[ICAAP]]
* [[Microprudential]]
* [[Pillar 1]]
* [[Pillar 2]]
* [[Pillar 3]]
* [[Primary Loss Absorbing Capital]]
* [[Regulatory capital]]
* [[Reserve requirements]]
* [[RWAs]]
* [[Settlement risk]]
* [[Slotting]]


[[Category:Compliance_and_audit]]
[[Category:Financial_risk_management]]

Latest revision as of 10:41, 31 January 2018

1.

In the Capital Asset Pricing Model, the same as Diversifiable risk.

Also known as Specific risk or Unsystematic risk.


2.

The concept is also important in bank regulation and stress testing. Regulated banks must be resilient both to shocks which are market-wide, and to shocks which are idiosyncratic or specific to the regulated entity.


See also

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