What is bank capital? Why is the reserve for loan losses not counted as part of...

What is bank capital? Why is the reserve for loan losses not counted as part of equity capital? Does retained earnings represent cash available to the bank?

Expert Solution

Bank capital represents the net worth of the bank and it is arrived after deducting bank's liabilities from bank's assets. Bank's Assets includes cash, investments, advances etc. Liabilities includes reserves and surplus, deposits and borrowings.

Reserve for loan losses not counted as part of equity capital as per the Basel I,"as they are created against identified losses or in respect of identified deterioration in the value of assets and also they are not freely available to meet unidentified losses that may subsequently arise elsewhere in the portfolio." Basel I specified " a limit of 1.25 percentage points of weighted risk asset" for a general loan loss provision to be admitted in Tier II capital.

Retained earnings doesn't represent cash available to bank as retained earnings are the profits that are left after paying dividends to shareholders and are available for reinvestment. Retained earnings form a part of bank's net worth or capital or surplus.

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What is human capital and why is it crucial to expand human capital as part of...

What is human capital and why is it crucial to expand human capital as part of the development process?

Part 3 Imagine that the economy is experiencing inflation and that the Reserve Bank of Australia...

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Part 3 Imagine that the economy is experiencing inflation and that the Reserve Bank of Australia...

Part 3 Imagine that the economy is experiencing inflation and that the Reserve Bank of Australia (RBA) decides to implement a contractionary monetary policy or 'tight money' to return inflation to its target level. a) What type of open market operations (OMOs) will the RBA undertake consistent with a contractionary monetary policy approach? b) How will the money supply be affected? c) Explain how the three stages of transmission process from a contractionary monetary policy link a change in interest...

The reasons why the housing market is of particular interest to the Reserve Bank , and...

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what are Bond Capital (Loan Capital) and Share Capital ? and their differences ?

What are the complicating situations for determining which items should be counted as part of inventory?...

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Initial deposit --> university bank ---> loan --> bank #2. --loan--> bank #3---loan --> ($100).

Initial deposit --> university bank ---> loan --> bank #2. --loan--> bank #3---loan --> ($100). Deposit--> Deposit--> Deposit--> a. What volume of loans can the banking system in the figure support? _____________ b. If the reserve requirement were 45 percent rather than 75 percent, what would the system’s lending capacity be? ____________

Why is the banking system in the United States referred to as a fractional reserve bank...

Why is the banking system in the United States referred to as a fractional reserve bank system? What is the role of deposit insurance in a fractional reserve system?

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What is bank capital? Why is the reserve for loan losses not counted as part of...

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