Covenant and Off balance sheet risk: Difference between pages

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#A formal legal agreement to take, or not to take, certain actions.
1. ''Liquidity and funding risk in banks.''
#In loan documentation, a promise given by the borrower to take, or not to take, relevant actions.<ref>http://www.treasurers.org/node/8842</ref>  For example, a ''financial covenant'' to maintain a minimum ratio of net worth to debt.
#In relation to pension funds, the credit strength of the sponsoring employer and its commitment to the pension fund.


Off balance sheet sources of liquidity risks for banks include items which might cause demands for additional funding in the future. These include:
*Contingent liabilities such as guarantees.
*Undrawn lending facilities.
*Derivative instruments.
*Securitisation special purpose vehicles.
2. ''Capital risk in banks.''
The risk of adverse effects on the bank's profits and capital, from similar off balance sheet sources.


== See also ==
* [[Accounting exposure]]
* [[Asset cover]]
* [[Event of default]]
* [[Financial covenant]]
* [[Incurrence covenant]]
* [[Interest cover]]
* [[Loan agreement]]
* [[Maintenance covenant]]
* [[Net worth]]
* [[Restrictive covenant]]
* [[Waiver]]


3.


==References==
Any risks to an organisation arising from events, contingencies or relationships not recorded in the organisation's balance sheet.
<references/> Treasury Essentials: Covenants, The Treasurer, March 2013


For example, repo-to-maturity transactions.


==Other links==
[http://www.treasurers.org/node/5225 Loan agreement covenant performance, Will Spinney, ACT 2009]


[[Category:Bank_Lending]]
== See also ==
[[Category:Debt_Capital_Markets]]
* [[Balance sheet]]
[[Category:Legal_Documentation]]
* [[CCF]]
[[Category:Managing_Risk]]
* [[Contingent liabilities]]
* [[Derivative instrument]]
* [[Entity]]
* [[FRS  102]]
* [[IFRS 16]]
* [[Leverage Ratio Exposure]]
* [[Liquidity risk]]
* [[Off balance sheet]]
* [[Off balance sheet finance]]
* [[Repo-to-maturity]]
* [[Required Stable Funding]]
* [[Securitisation special purpose vehicle]]

Revision as of 16:20, 6 October 2018

1. Liquidity and funding risk in banks.

Off balance sheet sources of liquidity risks for banks include items which might cause demands for additional funding in the future. These include:

  • Contingent liabilities such as guarantees.
  • Undrawn lending facilities.
  • Derivative instruments.
  • Securitisation special purpose vehicles.


2. Capital risk in banks.

The risk of adverse effects on the bank's profits and capital, from similar off balance sheet sources.


3.

Any risks to an organisation arising from events, contingencies or relationships not recorded in the organisation's balance sheet.

For example, repo-to-maturity transactions.


See also