Banking Supervision and Capital Regulation
Purpose of banking supervision is
to ensure that banks operate in a safe and sound manner.
to ensure that banks "hold capital and reserves sufficient to support the risks that arise in their business".
sound practices for banks' risk management
Regulatory Capital
list of the elements that count as capital for regulatory purposes
the set of conditions these elements must comply with in order to be considered eligible.
Risk-Weighted Assets
all exposures after conversion into assets and after having received supervisory risk weights according to their degree of risk.
A supervisory risk weight
is a percentage used to convert the nominal amount of a credit exposure into an amount of 'exposure at risk'.
Economic Capital: trade off between profitability and insolvency