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Chapter 5: Regulation of banks (Basel Accords) (Basel 2 (Main changes…

- - - - Common stock and disclosed reserves/retained earnings
    - - Undisclosed reserves, revaluation reserves, subordinated debt
  - - - Market risk requirement was set for any open positions in the trading books
- - - - Total capital divided by sum of RWA plus 12.5 multiplied by capital charges for both market and operational risk
  - - - Risk weights are dependent on ratings from credit rating agencies
      - Only works well for countries that have credit ratings
    - - International banks are allowed to use their own internally generated credit rating
      - Models used will be assessed and audited by supervisors
- - - - Inadequacy of capital was in terms of exposure to both market and credit risk