Question

In: Economics

How do regulators use capital requirements when undertaking macroprudential supervision of all the banks in the...

How do regulators use capital requirements when undertaking macroprudential supervision of all the banks in the financial system? Explain in simple terms.

Solutions

Expert Solution

MACROPRUDENTIAL SUPERVISION OF THE BANKS AND FINACIAL SYSTEM IT is also known as macroprudential regulation it is the financial regulation that aims to reduce the risk in the financial system as a whole(or systematic risk ), there is general agreement among the policymakers and economic reserchers about the modernizing regulatory frame work towards the macroproprudential prespective.

capital requirement is the tool of the macroprudential regulation. it is used to avoid the excessive balance sheet shrinkage from banks at time of problem. as we know that this is expressed as capital adequecy ratio of a equity as a percentage of weighted risk assets. these taken into consideration to ensure that institution do not take excess leverage and risk or they become insolvent. where capital requirements governs the ratio of equity to debt, which is recorded in the liability side and equity side of a firms balance sheet which carry out the asset side of the bank"s balance sheet capital is source of fund not use of fund

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

How do regulators use capital requirements when undertaking macroprudential supervision of all the banks in the...
How do regulators use capital requirements when undertaking macroprudential supervision of all the banks in the financial system? Explain.
Bank regulators impose capital requirements in order to a. increase the amount of leverage in the...
Bank regulators impose capital requirements in order to a. increase the amount of leverage in the economy. b. provide an incentive for banks to hold risky assets.  c. ensure banks can pay off depositors. d. increase the probability of a credit crunch.   To decrease the money supply, the Fed can a. buy government bonds or increase the discount rate. b. buy government bonds or decrease the discount rate.  c. sell government bonds or increase the discount rate. d. sell...
explain how regulators use the risk-based capital (RBC) method to evaluate an insurer’s capital.
explain how regulators use the risk-based capital (RBC) method to evaluate an insurer’s capital.
Explain the advantages and disadvantages of increasing capital requirements for banks?
Explain the advantages and disadvantages of increasing capital requirements for banks?
Explain how regulators use the risk-based capital (RBC) method to evaluate an insurer’s capital. List two...
Explain how regulators use the risk-based capital (RBC) method to evaluate an insurer’s capital. List two types of activities insurers commonly use to provide capital on their balance sheets. Describe the factors that affect the increase in policyholders’ surplus from discounting loss reserves. Describe the benefit to insurers of issuing surplus notes to provide capital. Identify five factors that complicate insurers’ dividend decisions. List two common alternatives to dividends for distributing income to company shareholders.
6. Minimum capital requirements for banks are an extremely important financial regulation. a. Explain how deposit...
6. Minimum capital requirements for banks are an extremely important financial regulation. a. Explain how deposit insurance creates a moral hazard problem in the banking sector. b. Explain how requiring banks to hold more equity capital helps reduce the moral hazard problem created by deposit insurance. c. How does a larger capital cushion make banks more resilient during a financial crisis? d. Why is it important for capital requirements to be adjusted by regulators to allow for the business cycle?
Banks are subject to capital requirements, which force them to maintain a minimum amount of capital...
Banks are subject to capital requirements, which force them to maintain a minimum amount of capital (or equity) as a percentage of total assets. How do banks satisfy regulatory requirements?
Why does the Federal Reserve impose capital requirements on commercial banks?
Why does the Federal Reserve impose capital requirements on commercial banks?
Minimum capital requirements for banks are an extremely important financial regulation. a.Explain how deposit insurance creates...
Minimum capital requirements for banks are an extremely important financial regulation. a.Explain how deposit insurance creates a moral hazard problem in the banking sector. Minium capit b.Explain how requiring banks to hold more equity capital helps reduce the moral hazard problem created by deposit insurance. c.How does a larger capital cushion make banks more resilient during a financial crisis? d.Why is it important for capital requirements to be adjusted by regulators to allow for the business cycle?
Regulators have traditionally required banks to maintain capital-asset ratios of a certain level to ensure adequate...
Regulators have traditionally required banks to maintain capital-asset ratios of a certain level to ensure adequate net worth based on the size and composition of the bank’s assets on its balance sheet. Why might such capital adequacy requirements not be effective?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT