Muhammed Hasan Yılmaz, PhD’s Post

What Is the Capital Adequacy Ratio? The capital adequacy ratio (CAR) is an indicator of how well a bank can meet its obligations. Also known as the capital-to-risk weighted assets ratio (CRAR), the ratio compares capital to risk-weighted assets and is watched by regulators to determine a bank's risk of failure. It's used to protect depositors and promote the stability and efficiency of financial systems around the world. Understanding CAR The capital adequacy ratio is calculated by dividing a bank's capital by its risk-weighted assets. Currently, the minimum ratio of capital to risk-weighted assets is 8% under Basel II and 10.5% (which includes a 2.5% conservation buffer) under Basel III. The Bank for International Settlements. "Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework." High capital adequacy ratios are those that are higher than the minimum requirements under Basel II and Basel III. A minimum capital adequacy ratio is critical in ensuring that banks have enough cushion to absorb a reasonable amount of losses before they become insolvent and consequently lose depositors’ funds. The capital used to calculate the capital adequacy ratio is divided into two tiers. The two capital tiers are added together and divided by risk-weighted assets to calculate a bank's capital adequacy ratio. Risk-weighted assets are calculated by looking at a bank's loans, evaluating the risk and then assigning a weight. When measuring credit exposures, adjustments are made to the value of assets listed on a lender’s balance sheet. All of the loans the bank has issued are weighted based on their degree of credit risk. For example, loans issued to the government are weighted at 0.0%, while those given to individuals are assigned a weighted score of 100.0%. #gpi #money #economy #invest #investing

What Is the Capital Adequacy Ratio? The capital adequacy ratio (CAR) is an indicator of how well a bank can meet its obligations. Also known as the capital-to-risk weighted assets ratio (CRAR), the ratio compares capital to risk-weighted assets and is watched by regulators to determine a bank's risk of failure. It's used to protect depositors and promote the stability and efficiency of financial systems around the world. Understanding CAR The capital adequacy ratio is calculated by dividing a bank's capital by its risk-weighted assets. Currently, the minimum ratio of capital to risk-weighted assets is 8% under Basel II and 10.5% (which includes a 2.5% conservation buffer) under Basel III. The Bank for International Settlements. "Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework." High capital adequacy ratios are those that are higher than the minimum requirements under Basel II and Basel III. A minimum capital adequacy ratio is critical in ensuring that banks have enough cushion to absorb a reasonable amount of losses before they become insolvent and consequently lose depositors’ funds. The capital used to calculate the capital adequacy ratio is divided into two tiers. The two capital tiers are added together and divided by risk-weighted assets to calculate a bank's capital adequacy ratio. Risk-weighted assets are calculated by looking at a bank's loans, evaluating the risk and then assigning a weight. When measuring credit exposures, adjustments are made to the value of assets listed on a lender’s balance sheet. All of the loans the bank has issued are weighted based on their degree of credit risk. For example, loans issued to the government are weighted at 0.0%, while those given to individuals are assigned a weighted score of 100.0%. #gpi #money #economy #invest #investing

What Is the Capital Adequacy Ratio? The capital adequacy ratio (CAR) is an indicator of how well a bank can meet its obligations. Also known as the capital-to-risk weighted assets ratio (CRAR), the ratio compares capital to risk-weighted assets and is watched by regulators to determine a bank's risk of failure. It's used to protect depositors and promote the stability and efficiency of financial systems around the world. Understanding CAR The capital adequacy ratio is calculated by dividing a bank's capital by its risk-weighted assets. Currently, the minimum ratio of capital to risk-weighted assets is 8% under Basel II and 10.5% (which includes a 2.5% conservation buffer) under Basel III. The Bank for International Settlements. "Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework." High capital adequacy ratios are those that are higher than the minimum requirements under Basel II and Basel III. A minimum capital adequacy ratio is critical in ensuring that banks have enough cushion to absorb a reasonable amount of losses before they become insolvent and consequently lose depositors’ funds. The capital used to calculate the capital adequacy ratio is divided into two tiers. The two capital tiers are added together and divided by risk-weighted assets to calculate a bank's capital adequacy ratio. Risk-weighted assets are calculated by looking at a bank's loans, evaluating the risk and then assigning a weight. When measuring credit exposures, adjustments are made to the value of assets listed on a lender’s balance sheet. All of the loans the bank has issued are weighted based on their degree of credit risk. For example, loans issued to the government are weighted at 0.0%, while those given to individuals are assigned a weighted score of 100.0%. #gpi #money #economy #invest #investing

Today, we are excited to share with you our ISP Credit Outlook 2025 prepared by Anke Richter, CFA with the title "Unlikely to be a vintage year": - 2024 was a solid year for credit, 2025 will likely be challenging with credit spreads at/close to decade lows, setting us up for a difficult 2025.   - Marco/Rates Outlook- Transatlantic Gap widening. The dominant macro theme will be the widening Transatlantic Gap between the US and Europe. Our base case is a No Landing US scenario. We are duration neutral at 10yr 4.5% in USD and 2% in EUR.   - Credit Spread – widening bias: Given the tight credit spreads, we think there is a widening bias. Excess returns will be small, potentially even negative. We see returns for USD IG and EUR IG/HY around 3% and 6% for USD HY.   - Credit positioning-Quality: In a compressed environment, it is relatively cheap to move into a better credit and make the portfolio more resilient. We OW banks, UW EUR HY and limited our exposure to France, especially banks. We are UW US duration.  Feel free to reach out to Anke Richter, CFA to be added to her mailing list or contact our ISP Fixed Income sales & trading ([email protected]) in our global offices – Zurich, Geneva , Hong Kong, Dubai and Tel Aviv.

In our context, there are multiple liquidity ratios which all banks and financial institutions need to abide by at all times namely CRR, SLR, net liquid asset to  deposit ratio, CD ratio. Basel III ratios namely net stable funding ratio and liquidity coverage ratio are not applicable fully as on date however I believe most banks would be computing these internally for their domestic consumption in attempts to analyze the granularity of their liquidity profiles.  1. CRR is a basic cash requirement to be maintained by banks with central bank which does not earn anything. present requirement is a floor of 4% for commercial banks. 2. SLR factors cash, bank balance and unencumbered government securities comparable to total deposit. Present requirement is a floor of 12% for commercial banks. 3. Net liquid asset to deposit ratio factors cash, bank balance, money at call and short notice, investment into Government securities and placement up to 90 days. This ratio factors any short term borrowings payable upto 90 days too. Present requirement is a floor of 20% for commercial banks.  This ratio becomes vital as any shortfall below 20% floor is subject to addition to risk weightage in capital adequacy framework. 4. CD ratio is very common in pedestrians and banking fraternity as a yardstick barometer for liquidity. It factors facilities such as refinance, debentures issued for resources and not capital purposes, and external commercial borrowings on top of deposits and loans. 5. NSFR and LCR are not fully enforced however banks compute these regularly. Ideal is floor of 100% for both of these ratios. I understand that banks hold few other assets that could have been considered as liquid such as freely tradable equity investments and gold which can be converted into cash without much impairment at fair market value. These asset classes are not counted in net liquid asset to deposit ratio computation despite being highly liquid in my view. While long term Government bonds are listed in local bourse, there are hardly any transaction seen on that front. Banks can borrow against these securities from the central bank at ease however but salability of these instruments are not regularly tested. Similarly, I have hardly come across situations where banks can withdraw or premature their placements before maturity. Yet both of these keep constituting to be components of liquid assets.

What is the Capital adequacy ratio? The capital adequacy ratio (CAR) is an indicator of how well a bank can meet its obligations. Also known as the capital-to-risk weighted assets ratio (CRAR), the ratio compares capital to risk-weighted assets and is watched by regulators to determine a bank's risk of failure. It's used to protect depositors and promote the stability and efficiency of financial systems around the world. Understanding CAR The capital adequacy ratio is calculated by dividing a bank's capital by its risk-weighted assets. Currently, the minimum ratio of capital to risk-weighted assets is 8% under Basel II and 10.5% (which includes a 2.5% conservation buffer) under Basel III. The Bank for International Settlements. "Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework." High capital adequacy ratios are those that are higher than the minimum requirements under Basel II and Basel III. A minimum capital adequacy ratio is critical in ensuring that banks have enough cushion to absorb a reasonable amount of losses before they become insolvent and consequently lose depositors’ funds. The capital used to calculate the capital adequacy ratio is divided into two tiers. The two capital tiers are added together and divided by risk-weighted assets to calculate a bank's capital adequacy ratio. Risk-weighted assets are calculated by looking at a bank's loans, evaluating the risk and then assigning a weight. When measuring credit exposures, adjustments are made to the value of assets listed on a lender’s balance sheet. All of the loans the bank has issued are weighted based on their degree of credit risk. For example, loans issued to the government are weighted at 0.0%, while those given to individuals are assigned a weighted score of 100.0%. #gpi #money #economy #invest #investing

An increasing number of banks around the world have begun using synthetic risk transfers (SRTs) to manage credit risk and lower capital requirements. Globally, more than $1.1 trillion in assets have been synthetically securitized since 2016, of which almost two-thirds were in Europe, as shown in the chart. SRTs move the credit risks associated with a pool of assets from banks to investors through a financial guarantee or credit-linked notes while keeping the loans on banks’ balance sheets. Through this credit protection, banks can effectively claim capital relief and reduce regulatory capital charges. However, the transactions can generate risks to financial stability that need to be assessed and monitored. First, SRTs may elevate interconnectedness and create negative feedback loops during stress. For instance, there is anecdotal evidence that banks are providing leverage for credit funds to buy credit-linked notes issued by other banks. From a financial system perspective, such structures retain substantial risk within the banking system but with lower capital coverage. Second, SRTs may mask banks’ degree of resilience because they may increase a bank’s regulatory capital ratio while its overall capital level remains unchanged. Increased use of SRTs may reflect inability to build capital organically because of weaker fundamentals and profitability performance. Furthermore, overreliance on SRTs exposes banks to business challenges should liquidity from the SRT market dry up. Finally, although lower capital charges at a bank level are reasonable, given the risk transfer, cross-sector regulatory arbitrage may reduce capital buffers in the broad financial system while overall risks remain largely unchanged. Financial sector supervisors need to closely monitor these risks and ensure the necessary transparency regarding the SRTs and their impact on banks’ regulatory capital. 🔹 Read more in the IMF’s latest Global Financial Stability Report: https://lnkd.in/eaXy5a6R Gonzalo Fernandez Dionis, CFA, Yiran Li, CFA, Silvia L. Ramirez

The Capital Adequacy Ratio or CAR is a highly critical metric for the financial institution. It measures a specific bank’s capital against its risk-weighted assets (Budianto, E. W. H. & Dewi, 5 2022). Therefore, the Capital Adequacy Ratio is essentially a key indicator of a bank's financial stability. It also demonstrates the level of expertise with which the bank is managing the risks. The descriptive statistical analysis for the ten selected banks in South Asia shows that they have a mean Capital Adequacy Ratio of 12.75 per cent. The median Capital Adequacy Ratio is at 12.50 per cent. The statistics also show that the standard deviation within their Capital Adequacy Ratio is at 1.25 per cent. The minimum Capital Adequacy Ratio for the selected ten South Asian banks is 10.50 per cent. Finally, a descriptive analysis of the ten banks shows a maximum Capital Adequacy Ratio of 15.00 per cent. The descriptive statistical analysis of the Capital Adequacy Ratios from the selected ten South Asian banks shows that they have been managing their capital at a sufficient level. However, the analysis also shows there are also certain level deviations within that expertise in capital management with some banks showing comparatively higher levels of efficiency.

Following the global financial crisis, banks lengthened the maturity of their assets relative to their liabilities, principally through increasing their investments in mortgage-related assets. Whether this type of maturity transformation exposes banks to interest rate risk depends in part on the effectiveness of bank deposits as a hedge against interest rate shocks. In this paper, we provide evidence that, despite an increase in the average maturity of bank assets, the duration of bank equity was negative for most of the post-financial crisis era. We document that an important factor contributing the decrease in the duration of bank equity was an increase in the average duration of deposits due to a positive relation between deposit betas and the level of interest rates. The dynamic nature of the deposit betas also explains why deposits provided a poor hedge against recent rate hikes and declines in the value of bank long term fixed rate assets. We provide corroborative evidence concerning the impact of variation in deposit betas on bank interest rate risk exposure using a text based analysis of bank earnings conference calls. Overall, we provide evidence that variable deposit betas contribute to the negative convexity of bank equity and variations in bank interest rate risk exposure.

And to complement the FRB paper, one from europe that focusses on the damage to the economy caused by systemic bank runs, but does not examine in the same way the saliency of bank runs to bank failure. Although failure per se might not be caused by bank runs, the de-leveraging effect on the economy is so serious that it justifies a greater focus on liquidity. European history (especially for those countries studied) might also drive some important differences. https://lnkd.in/espNgUSD