Originally Posted by
Xerof
Liz,
it's 20 years since I was last involved in Bank treasury ops, and in those days Capital Adequacy Ratios were only just being implemented globally (Cook ratios in those days)
It seems the basic principles have morphed into Basel i,ii and iii, and without knowing the exact details, I think you can take it for granted that banks comply with the requirements at all times. Monitoring by the authorities is fairly detailed and intense.
i do know that asset classes and liability classes for that matter, have been tweaked over the years, perhaps to cope with the financial engineering that the back room boys seem to invent on a daily basis, and push out to the unsuspecting public and insto's as new products.
So, each bank would apply the rules as they stand to each item on the asset side of the balance sheet, multiply $ amounts by the appropriate weighting, to determine an 'adjusted' balance sheet number (off bs products are alo captured to varying degrees)
similarly, the same exercise is done for the liability side, to calculate adequacy ratio
in a nutshell, don't sweat the detail, but if a bank's experiencing high growth, in products that are 'expensive' to hold on/off B/S, and it's Basel ratio is nearing the limit, sure as eggs, you will be looking at a CR
HNZ products would carry more capital requirements than Kiwibank products I would suggest, and that means less leverage to expand the operations