Capital adequacy and X-inefficiency: Difference between pages

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imported>Doug Williamson
(Expand to refer to types of capital.)
 
imported>John Grout
(To create the entry)
 
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1.  
A term from economics referring to a firm's tendency not to maximise output from its installed equipment, systems, personnel as simple economic theory might suggest. It is often explained by agency costs as managers pursue their own objectives not the interests of shareholders, staff extracting rent for themselves, etc. But sheer human failing may also be important.


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.
X-inefficiency may also be applied by extension to an industry or to a whole regional or national etc. economy.


An X-efficient firm may, of course, not be allocatively efficient - producing the "right" outputs using the best mix of inputs to produce them.


2.
Leibenstein,Harvey("Allocative Efficiency vs. X-Efficiency", American Economic Review 56(3), June 1996, pp 392–415 is normally taken as the source of the term X-efficiency.
 
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.
 
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 ==
* [[Bank for International Settlements]]
* [[Basel II]]
* [[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]]

Revision as of 10:27, 20 September 2013

A term from economics referring to a firm's tendency not to maximise output from its installed equipment, systems, personnel as simple economic theory might suggest. It is often explained by agency costs as managers pursue their own objectives not the interests of shareholders, staff extracting rent for themselves, etc. But sheer human failing may also be important.

X-inefficiency may also be applied by extension to an industry or to a whole regional or national etc. economy.

An X-efficient firm may, of course, not be allocatively efficient - producing the "right" outputs using the best mix of inputs to produce them.

Leibenstein,Harvey("Allocative Efficiency vs. X-Efficiency", American Economic Review 56(3), June 1996, pp 392–415 is normally taken as the source of the term X-efficiency.

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