Difference between revisions of "Capital"

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== Kinds of capital ==
== Kinds of capital ==


The standard accounting view of business capital focuses on the claims side of the balance sheet that represent sources of funding, such as shareholders' equity and paid-in earnings.<ref>{{cite web|url=http://www.riskcenter.com/story.php?id=7758|name=What Is “Economic Capital?” - A Quick Guide to the Differences between Economic Capital and Regulatory Capital|org=Riskcenter.com|date=July 29, 2008}}</ref> But regulators of financial insitutions like the [[Federal Deposit Insurance Commission]] (FDIC), the [[Federal Reserve]] and the Bank of International Settlements ([[BIS]]) also take account of risk factors associated with different kinds of capital assets. Regulators assign different 'tiers' to bank assets when deciding what percentage of total assets must be held as required liquid capital, also called regulatory capital, at each tier. Such capital ratios are generally around 10 percent.
The standard accounting view of business capital focuses on the claims side of the balance sheet that represent sources of funding, such as shareholders' equity and paid-in earnings.<ref>{{cite web|url=http://www.riskcenter.com/story.php?id=7758|name=What Is “Economic Capital?” - A Quick Guide to the Differences between Economic Capital and Regulatory Capital|org=Riskcenter.com|date=July 29, 2008}}</ref> But regulators of financial insitutions like the [[Federal Deposit Insurance Corporation]] ([[FDIC]]), the [[Federal Reserve]] and the Bank of International Settlements ([[BIS]]) also take account of risk factors associated with different kinds of capital assets. Regulators assign different 'tiers' to bank assets when deciding what percentage of total assets must be held as required liquid capital, also called regulatory capital, at each tier. Such capital ratios are generally around 10 percent.


The Swiss-based BIS several years ago enacted the so-called [[Basel II]] accord that revised its supervisory regulations governing all global banks,<ref>{{cite web|url=http://www.bis.org/publ/bcbs107.htm|name=Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework|org=Bank of International Settlements|date=July 29, 2008}}</ref> which domestic regulators generally base their measurements on. However, its strict guidelines have been criticized as rigid and out-of-touch with shareholder expectations by advocates of measuring 'economic capital', which focuses on risk from the point of view of the risk bearer.<ref>{{cite web|url=http://www.riskcenter.com/story.php?id=7758
The Swiss-based BIS several years ago enacted the so-called [[Basel II]] accord that revised its supervisory regulations governing all global banks,<ref>{{cite web|url=http://www.bis.org/publ/bcbs107.htm|name=Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework|org=Bank of International Settlements|date=July 29, 2008}}</ref> which domestic regulators generally base their measurements on. However, its strict guidelines have been criticized as rigid and out-of-touch with shareholder expectations by advocates of measuring 'economic capital', which focuses on risk from the point of view of the risk bearer.<ref>{{cite web|url=http://www.riskcenter.com/story.php?id=7758

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