Wednesday, December 3, 2014

Simple view of Bank Capital Rules


A recent review of the supranational regulatory agencies and the rating agencies, all of whom are readjusting their analysis, we can now comfortably specify the capital requirements for most financial institutions in a few sentences:

With the CCAR (DFAST) and AQR results published, we merely have to derive the PPNR and TLAC to calculate the leverage ratios and tier one capital ratios (CET1), we can calculate the supplementary leverage ratios (SLR) and enhanced supplementary ratios (ESLR) plus any conditional buffers required and/or additional loss absorption capacity (ALAC) the analysis (adjusted for contingent capital) required.  All of this includes consideration of advanced vs. standardized approaches, any transitional arrangements (or parallel run), any netting interpretations, and the appropriate risk weighting applications. For international considerations, there are significant cross border differences each step in the calculations. There is also the potential intersection of the liquidity coverage ratio(s) and the leverage ratios.

Piece of cake

Posted in the Linkedin Risk managers group in November

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