Question

how to calculate all of these:

Capital Adequacy

Capital Adequacy ratio

Minimum Leverage Ratio

Federal Reserve Standards Liquidity Coverage Ratio Net Stable Funding Ratio

Answer 1

1. CAPITAL ADEQUACY - It is the measure of the entity's ability to pay back the money if the borrowers are unable to pay back the amounts due. It consist of Tier 1 and Tier 2 capital. Tier 1 is the permanent capital available with bank which covers the losses while continuing its operations. Tier 2 is the capital that is used to cover losses while winding up after Tier1 is used.

CAPITAL ADEQUACY = Tier 1 capital + Tier 2 Capital

2. CAPITAL ADEQUACY RATIO - IT is a measure of bank's available Tier 1 and Tier 2 capital as a percentage of Bank's lendings i.e it is expressed as a percentage of bank's risk weighted credit exposures.

CAPITAL ADEQUACY RATIO = (Tier1 + Tier2 Capital)/Risk weighted lendings

3. Minimum Leverage Ratio - It is the measure of how much funds have come from Debt. Every company requires a mixture of debt and equity. Leverage ratio is the amount of Debt. as a ratio to equity, also known as debt-equity ratio.

Debt-equity ratio = Total Debt/ Total Equity

= Total Liabilities(current or long term)/Total Shareholders' equity

4. Liquidity Coverage Ratio - It refers to the liquid assets held by a company to cover its short term obligations or liabilities. It aims to make sure that there are sufficient assets to cover the short term needs. It was basically designed for banks to keep high quality liquid assets.

LCR = High quality liquid assets/Total cash net outflows over next 30 days period

LCR should be greater than or equal to 1 or 100%

5. Net Stable Funding Ratio - It is the required liquidity standard which tells banks to hold funds to cover duration of long term assets. Stable sources of funding are Prefered capital with maturity greatee than 1 year, liabilities greater than 1 year, capital.

NSFR = Available stable funding/ Required Stable funding