Core Capital (Tier 1 Capital):
01) Paid up capital / capital deposited with BB
02) Share premium
03) Statutory reserve
04) General reserve
05) Retained earning
06) Minority Interest in subsidiaries
Showing posts with label 201. Show all posts
Showing posts with label 201. Show all posts
Financial Statements of Financial Institutions
Financial Statements:
i) Profit and Loss account or Income Statement
ii) Balance Sheet
iii) Cash Flow Statement
iv) Statement of change in equity
v) Liquidity Statement
vi) Notes to the financial statements
i) Profit and Loss account or Income Statement
ii) Balance Sheet
iii) Cash Flow Statement
iv) Statement of change in equity
v) Liquidity Statement
vi) Notes to the financial statements
Basel 2 and Basel 3
A. Tier 1 Capital
A1. Basel 2:
Tier 1 capital ratio=4%
Core Tier 1 capital ratio=2%
The difference between the total capital requirement of 8.0% and the Tier 1 requirement can be met with Tier 2 capital.
A2. Basel 3:
Tier 1 capital ratio=6%
Core Tier 1 capital ratio (common equity after deduction)=4.5%
Core Tier 1 capital ratio ( common equity after deduction) before 2013=2%
Ist January 2013=3.5%
Ist January 2014=4%
Ist January 2015=4.5%
The difference between the total capital requirement of 8.0% and the Tier 1 requirement can be met with Tier 2 capital.
B. Capital Conservation Buffer
B1. Basel 2:
There is no capital conservation buffer.
B2. Basel 3: Banks will required to hold a capital conservation of 2.5% to withstand future periods of stress bringing the total common equity requirement to 7%.
Capital conservation buffer of 2.5%, on top of Tier 1 capital, will be met with common equity, after the application of deductions.
Capital conservation buffer before 2016=0%
Ist January 2016=0.625%
Ist January 2017=1.25%
Ist January 2018=1.875%
Ist January 2019=2.5%
The purpose of the conservation buffer is to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. While banks are allowed to draw on the buffer during such periods of stress, the closer their regulatory capital ratios approach the minimum requirement, the greater the constraints on earnings distributions.
C. Countercyclical Capital Buffer
C1. Basel 2:
There is no countercyclical capital buffer
C2. Basel 3:
A countercyclical buffer within a range of 0%-2.5% of common equity or other fully loss absorbing capital will be implemented according to national circumstances.
Banks that have a capital ratio that is less than 2.5%, will face restrictions on payouts of dividends, share buybacks and bonuses.
The buffer will be phased in from January 2016 and will be fully effective in January 2019.
Countercyclical capital buffer before 2016=0%,
1st January 2016=0.625%
1st January 2017=1.25%
1st January 2018= 1.875%
1st January 2019=2.5%
D. Capital for Systemically Important Banks only
D1. Basel 2:
There is no capital for systemically important banks
D2. Basel 3:
Systemically important banks should have loss absobing capacity beyond the standards announced today and work continues on this issue in the Financial Stability Board and relevant Basel committee work streams.
The Basel Committee and the FSB are developing a well integrated approach to systemically important financial institutions which could include combinations of capital surcharges, contigent capital and bail-in debt.
Total Regulatory Capital Ratio=A+B+C+D
A1. Basel 2:
Tier 1 capital ratio=4%
Core Tier 1 capital ratio=2%
The difference between the total capital requirement of 8.0% and the Tier 1 requirement can be met with Tier 2 capital.
A2. Basel 3:
Tier 1 capital ratio=6%
Core Tier 1 capital ratio (common equity after deduction)=4.5%
Core Tier 1 capital ratio ( common equity after deduction) before 2013=2%
Ist January 2013=3.5%
Ist January 2014=4%
Ist January 2015=4.5%
The difference between the total capital requirement of 8.0% and the Tier 1 requirement can be met with Tier 2 capital.
B. Capital Conservation Buffer
B1. Basel 2:
There is no capital conservation buffer.
B2. Basel 3: Banks will required to hold a capital conservation of 2.5% to withstand future periods of stress bringing the total common equity requirement to 7%.
Capital conservation buffer of 2.5%, on top of Tier 1 capital, will be met with common equity, after the application of deductions.
Capital conservation buffer before 2016=0%
Ist January 2016=0.625%
Ist January 2017=1.25%
Ist January 2018=1.875%
Ist January 2019=2.5%
The purpose of the conservation buffer is to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. While banks are allowed to draw on the buffer during such periods of stress, the closer their regulatory capital ratios approach the minimum requirement, the greater the constraints on earnings distributions.
C. Countercyclical Capital Buffer
C1. Basel 2:
There is no countercyclical capital buffer
C2. Basel 3:
A countercyclical buffer within a range of 0%-2.5% of common equity or other fully loss absorbing capital will be implemented according to national circumstances.
Banks that have a capital ratio that is less than 2.5%, will face restrictions on payouts of dividends, share buybacks and bonuses.
The buffer will be phased in from January 2016 and will be fully effective in January 2019.
Countercyclical capital buffer before 2016=0%,
1st January 2016=0.625%
1st January 2017=1.25%
1st January 2018= 1.875%
1st January 2019=2.5%
D. Capital for Systemically Important Banks only
D1. Basel 2:
There is no capital for systemically important banks
D2. Basel 3:
Systemically important banks should have loss absobing capacity beyond the standards announced today and work continues on this issue in the Financial Stability Board and relevant Basel committee work streams.
The Basel Committee and the FSB are developing a well integrated approach to systemically important financial institutions which could include combinations of capital surcharges, contigent capital and bail-in debt.
Total Regulatory Capital Ratio=A+B+C+D
Pro-cyclical and counter-cyclical
Pro-cyclical: An economic variable positively correlates with and grows in parallel with the overall economy is pro-cyclical.
Counter-cyclical: Those variables that increase when the overall economy is slowing down are counter-cyclical.
Example: Personal incomes and business profits generally rise when the economy is growing, ie. pro-cyclical.
Unemployment is counter-cyclical because it rises when the economy weakens.
The financial regulations of Basel 2 are critized for possibly being pro-cyclical.
Under Basel 2, banks must increase their capital ratios when they face greater risk. This might mean they have less to lend in a recession, which could make the economic downturn worse.
Counter-cyclical: Those variables that increase when the overall economy is slowing down are counter-cyclical.
Example: Personal incomes and business profits generally rise when the economy is growing, ie. pro-cyclical.
Unemployment is counter-cyclical because it rises when the economy weakens.
The financial regulations of Basel 2 are critized for possibly being pro-cyclical.
Under Basel 2, banks must increase their capital ratios when they face greater risk. This might mean they have less to lend in a recession, which could make the economic downturn worse.
What is Unit Banking?
Unit Banking:
Unit Banking means a system of banking under which banking services are provided by a single banking organisation. Such a bank has single office of place of work. It has its own governing body or board of directors. It functions independently and is not controlled by any other individual, firm or body corporate. It also does not control any other bank. Such banks can become member of the clearing house and also of the Banker's Association. Unit banking system originateed and grew in the USA. Different unit banks in the USA are linked with each other and with other financial centres in the country through 'correspondent banks.'
Advantages of Unit banking
Disadvantages of Unit banking
Unit Banking means a system of banking under which banking services are provided by a single banking organisation. Such a bank has single office of place of work. It has its own governing body or board of directors. It functions independently and is not controlled by any other individual, firm or body corporate. It also does not control any other bank. Such banks can become member of the clearing house and also of the Banker's Association. Unit banking system originateed and grew in the USA. Different unit banks in the USA are linked with each other and with other financial centres in the country through 'correspondent banks.'
Advantages of Unit banking
Disadvantages of Unit banking
Disadvantages of Unit Banking
Disadvantages of Unit Banking:
1. No Economies of Large Scale
2. Lack of Uniformity in Interest Rates
3. Lack of Control
4. Risks of Bank's Failure
5. Limited Resources
6. Unhealthy Competition
7. Wastage of National Resources
8. No Banking Development in backward Arear
9. Local Pressure
1. No Economies of Large Scale
2. Lack of Uniformity in Interest Rates
3. Lack of Control
4. Risks of Bank's Failure
5. Limited Resources
6. Unhealthy Competition
7. Wastage of National Resources
8. No Banking Development in backward Arear
9. Local Pressure
Advantages of Unit Banking
Advantages of Unit Banking:
1. Efficitent Management
2. Better Service
3. Close Customer-banker Relation
4. No Evil Effects Due to Strike or Closure
5. No Monopolistic Practices
6. No Risks of Fraud
7. Closure of Inefficient Banks
8. Local Development
9. Promotes Regional Balance
1. Efficitent Management
2. Better Service
3. Close Customer-banker Relation
4. No Evil Effects Due to Strike or Closure
5. No Monopolistic Practices
6. No Risks of Fraud
7. Closure of Inefficient Banks
8. Local Development
9. Promotes Regional Balance
Functions of Commercial Bank
Functions of Commercial Bank:
A. Primary Functions
B. Secondary Functions
C. Fulfillment of Socio-Economic Objectives
A. Primary Functions
A. Primary Functions
B. Secondary Functions
C. Fulfillment of Socio-Economic Objectives
A. Primary Functions
Strategy of Financial Management
1. Financial planning
2. Identification of sources
3. Raising of funds
4. Investment of funds
5. Protection of funds
6. Distribution of profit
7. Management of funds
8. Cost control
9. Management of assets
10. Maintaining good relations
11. Protection of financial documents
12. Forceasting of cash flow
2. Identification of sources
3. Raising of funds
4. Investment of funds
5. Protection of funds
6. Distribution of profit
7. Management of funds
8. Cost control
9. Management of assets
10. Maintaining good relations
11. Protection of financial documents
12. Forceasting of cash flow
Methods or Techniques for Analysis and Interpretation of Financial Statement
1. Comparative Balance Sheet
2. Comparative Income Statement
3. Trend Percentage Analysis
4. Same of Common Size Statement
5. Fund Flow Statement
i) Statement of Changes in Working Capital
ii) Statement of Changes in Non-working Capital
iii) Statement of Source and Application of Fund
6. Ratio Analysis
2. Comparative Income Statement
3. Trend Percentage Analysis
4. Same of Common Size Statement
5. Fund Flow Statement
i) Statement of Changes in Working Capital
ii) Statement of Changes in Non-working Capital
iii) Statement of Source and Application of Fund
6. Ratio Analysis
Financial Intermediaries(FI) and Types of FI
FI: Firms engaging in the two-stage process of creating secondary financial assets such as savings deposits and exchanging them for money, then exchaning the money for the promary financial assets created by borrowers and others who would use the money.-John Lisdamen
Types of FI:
1. Commercial Banks
2. Credit Unions
3. Savings and Loan Association
4. Small loan companies
5. Mutual Savings Banks
6. Venture Capitalists
7. Investment Banks
8. Insurance Companies
9. Credit Card Companies
10. Thrift and Loan Institutions.
Types of FI:
1. Commercial Banks
2. Credit Unions
3. Savings and Loan Association
4. Small loan companies
5. Mutual Savings Banks
6. Venture Capitalists
7. Investment Banks
8. Insurance Companies
9. Credit Card Companies
10. Thrift and Loan Institutions.
Influencing factors of commercial bank's loan/credit policy
1. Capital position of the bank
2. Earnings requirements
3. Stability of deposits
4. Economic conditions of the area served by bank
5. Influence of monetary and fiscal policy
6. Experience and efficiency of the bank personnels
7. Competition in banking
8. Credit needs of the area served.
2. Earnings requirements
3. Stability of deposits
4. Economic conditions of the area served by bank
5. Influence of monetary and fiscal policy
6. Experience and efficiency of the bank personnels
7. Competition in banking
8. Credit needs of the area served.
Capital structure of a commercial bank
1. Authorised capital
2. Issued capital
3. Subscribed capital
4. Paid up capital
2. Issued capital
3. Subscribed capital
4. Paid up capital
Necessity of adequate capital for CB.
1. Transaction motive
2. Precautionary motive
3. Speculative motive
4. Provision of safety against bad debt.
2. Precautionary motive
3. Speculative motive
4. Provision of safety against bad debt.
Risks in Banking and Financial Services
1. Asset Risk
2. Basis Risk
3. Balance Sheet Risk
4. Core Risks
5. Counter party Risk
6. Country Risk
7. Computer Systems Risk
8. Compliance Risk
9. Call Risk
10. Concentration Risk
11. Credit Spread Risk or Downgrade Risk
12. Credit Risk
13.Detection Risk
14. Default or Credit Risk
15. Economic Risk
16. Exchange Risk
17. Foreign Exchange Risk
18. Fudning Risk
19. Facility Risk
20. Gap or Mismatch Risk
21. Integrity Risk
22. Interest Rate Risk
23. Location Risk
24. Liquidity Risk
25. Market Risk
26. Operational Risks
27. Price Risk
28. Political Risk
29. Reputation Risk
30. Systematic or Intrinsic Risk
31. Sovereign Risk
32. Strategic Risk
33. Time Risk
34. Transaction Risk
35. Transfer Risk.
2. Basis Risk
3. Balance Sheet Risk
4. Core Risks
5. Counter party Risk
6. Country Risk
7. Computer Systems Risk
8. Compliance Risk
9. Call Risk
10. Concentration Risk
11. Credit Spread Risk or Downgrade Risk
12. Credit Risk
13.Detection Risk
14. Default or Credit Risk
15. Economic Risk
16. Exchange Risk
17. Foreign Exchange Risk
18. Fudning Risk
19. Facility Risk
20. Gap or Mismatch Risk
21. Integrity Risk
22. Interest Rate Risk
23. Location Risk
24. Liquidity Risk
25. Market Risk
26. Operational Risks
27. Price Risk
28. Political Risk
29. Reputation Risk
30. Systematic or Intrinsic Risk
31. Sovereign Risk
32. Strategic Risk
33. Time Risk
34. Transaction Risk
35. Transfer Risk.
3 pillars of Basel-II
Pillar-I: Minimum Capital Requirements
i) Capital for Credit Risk
a) Standardized Approach (upto 2012)
b) Internal Rating Based Approach( from 2013)
2 Rating Agencies are CRISL and CRAB
(BRPD circular-05 29/04/2009)
i) Capital for Credit Risk
a) Standardized Approach (upto 2012)
b) Internal Rating Based Approach( from 2013)
2 Rating Agencies are CRISL and CRAB
(BRPD circular-05 29/04/2009)
Tier 3 Capital ( Additional Supplementary Capital)
Tier 3 Capital (Additional Supplementary Capital) consisting of short term subordinated debt maturity less than or equal of five years but greater than or equal to two years is meant solely for purpose of meeting a proportion of the capital requirements for market risk.
Banks sources of Fund
1. Paid up capital
2. Share Premium
3. Debenture/Bond issue
4. Reserve Fund
5. Deposit
6. Bills payable/Remittance
7. Borrowings from Money Market
8. Recovery of Advance/Payment of due installment of loans
9. Undistributed profit/Retained earnings
10. Sale of Assets
11. Govt. /Agencies Loan/Aid/Grant
12. Any other funds raised by the owner/Employees/Profit
REPO agreements/arrangements also acts as source of funding
2. Share Premium
3. Debenture/Bond issue
4. Reserve Fund
5. Deposit
6. Bills payable/Remittance
7. Borrowings from Money Market
8. Recovery of Advance/Payment of due installment of loans
9. Undistributed profit/Retained earnings
10. Sale of Assets
11. Govt. /Agencies Loan/Aid/Grant
12. Any other funds raised by the owner/Employees/Profit
REPO agreements/arrangements also acts as source of funding
What is Money Laundering?
Money Laundering means:
As per Money Laundering Prevention Act, 2002
Article 2 (Tha)
Au Properties acquired or earned directly or indirectly through illegal means.
Aa Illegal transfer, conversion, concealment of location or assistance in the above act of the
properties acquired or earned directly or indirectly through legal or illegal means.
As per Money Laundering Prevention Act, 2002
Article 2 (Tha)
Au Properties acquired or earned directly or indirectly through illegal means.
Aa Illegal transfer, conversion, concealment of location or assistance in the above act of the
properties acquired or earned directly or indirectly through legal or illegal means.
Process of money laundering:
Placement
Layering
Integration
Predicate offenses:
Corruption and bribery
Currency duplication
Duplication of paper and documents
Compelling to subscribe
Cheating
Counterfeiting
Illegal arms business
Illegal business of drug
Illegal business of theft goods
Abduction
Killing and injury seriously
Slaying of women and child
Black marketing and handover local and foreign currency
Theft and robbery
Human exploitation and illegal immigration
Dowry
Any other offence declared by the Govt. through public gazette.
Mark-to-Market
Mark-to-Market:
This is a process through which the treasury back-office values all outstanding positions at the current market rate to determine the current market value of these. This exercise also provides the profitability of the outstanding contracts. The treasury back office gathers the market rates from an independent source. ie. other than dealers of the same organization which is required to avoid any conflict of interest.
This is a process through which the treasury back-office values all outstanding positions at the current market rate to determine the current market value of these. This exercise also provides the profitability of the outstanding contracts. The treasury back office gathers the market rates from an independent source. ie. other than dealers of the same organization which is required to avoid any conflict of interest.
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