Banking and Finance PDF

·m Banking and finance Fundamentals of money banking functions of Money 1.Store value ! Money can be used to transfer Purchasing power from present to future. 2. Unit of account : Money is the standard unit or agreed measure of quotingor starting prices , 3.Medium of exchange: Money is acceptedas me...

·m Banking and finance Fundamentals of money banking functions of Money 1.Store value ! Money can be used to transfer Purchasing power from present to future. 2. Unit of account : Money is the standard unit or agreed measure of quotingor starting prices , 3.Medium of exchange: Money is acceptedas means of Payment. Economizes on time and effort spent in barter economy. * Banks Playeda crucial role offering liquidity and Payment Services- * Mones evolved from a system in which the medium of exchange is itself a Commodity (gold Coins), to a system which medium of exchange has value and its scaranteed by e institutions. · * firstmodern bank was in 1407 Republica di Genova *Monte dei Pashi di Siena , 1472 World oldest bank Still operating BanksSpecial role in the economy - > Playa crucial role in the allocation of Capital in the economy - > four Major functions 1. offering liquidity and payment services 2. Transforming assets 3.Marasing risks 4. Processing information Financial intermediation A bank is a special type of financial intermediary whose current operations Consist in granting loans and receiving deposits from the Country. financial intermediaries: are entities that intermediate between Providers and Users Of financial Capital , house holds and corporations example of how banks work. Response Goldsmith & anecdote Mones Multiplier: The pace at which banks Produce Mones and the Maximum amount of Money they can Produce. Money multiplier= 11 reserve requirments Central bank= a national bank that provides financial and banking services for its country's government and commercial banking system, as well as implementing the government's monetary policy and issuing currency. Central banks determine the availability and costs of Money and credit by controlling money supply and /or the level and structure of interest rates this do it by · Reserve requirements · key policy rates , Main reinfadancing operations Marginal lending and deposits facilities · open market operations: assets Purchase programs and quantitative easing · Print banknotes and Mint Coins central bank needs to be independent from Political influence · Single (inflation)or dual inflation employment mandate Banking basics 1 mones come from different clients Individuals , entities- Business Corporates Governments · , , Services= Cash Management/supply Chain Management small to big financing they offer all of these services - Retail Banking Model - focus on banking services to all individual consumers Services : sights and Saving account Loans Mortgages Debit and credit cards· private Banking Model : Subset of retail Banking - customer service its provided througha dedicated relationship Manager. Same services as retail Banking and - asset Manager , Brokerage, limited tax advisor clients are divided into Hish-Net-worth and ultra-High-let-worth Business Banking focus on banking services provided to small business that are owner operated. Services : Business sight and saving accounts Working Capital Management :efficient use of a company resources by monitoring and optimizing the use of current assets and liabilities) Merchant Services : Payment related and earipment services Loans and lines of credit commercial banking is laser in scale than business pankins A Commercial bank is a type of financial institution that accepts, deposits offers , choking account service , (Cash and treasury Management) it also offers this is a service offered to help business efficientlyManage their cashFlow, licridity and financial risks. Trade finance advice ↑ FX· fX means foreign Exchange With is the global Marketplace for the exchange ofcurrencies and advisors services They offer their services to big businesses with more than 500 employees, they have multiple locations, more than 5 million of revenue. And we could say that commercial bankings offers more of a consulting help. example of a Commercial bank Danco Santander &corporate banking its a financial institution Normally defined by its complexity, ·here is more variety of products and services reavired and these have to be provided at the global level is a highly relationship business With relationship Managers beinga kes role for clients Their services include providing credit expertise, assisting with deal executions, structure complex needs around the working capital management, Debt capital markets, a market for trading securities such as bonds and promissory notes example of a Corporate ban: City Bank services are between commercial and and investment banking services Sustainable finance Kes Concept How to Make Money Work for people and not Just for profit Universal definition financial activities WhichConsider the environment and social impact of an investment financial Green Finance-also called dee more definition Financial system which does three Fes things 1. It puts the long term needs of people ahead Of the short term Pursuit of Profit 2. Ensures Long term economic stability 3. funds projects which help decrease climate Change, Sustainable finance is about rewriting the rules whichGovern how Money Moves to the world and ensuring that thes are working for the lans term goo was is sustainable finance important -general View Main Concept : takin care of the Planet Secure a livable environment for future generations. Financial/business views taking care of the Planet is essential to mitigate risks and unlockinga long term value in investing Sustainable finance prosfinance business view exposure to regulatory fines reduction Reduce resource scarcity Reduce reputational damage growing consumer demand for20 friends Products lower operational costs through energy deficiency and waste reduction enhance brand robalts Inthe long run businesses that invest in envirome- N tal Stewardshipare better position for Stable growth Cons or why do not all companies do sustainable finance To HigherShort term costs 2.Lackof Standardization in Many countries , Investment Banking Aspecial Segment of banking operation that helps individuals or organizations raise capital and Provide Financial consultancy Services to them. Distinction from depositors institutions between investment banks originates from the us Regulators Framework : Glass Steagall act (1933). Commercial banks were not allowed to underwrite ordeal in securities.And investment banks were were not allowed to have close connection to commercial banks Repealed in 1999 by the Gram-teach Bailey act. An act with eliminated restrictions Preventing the Merger on banks Institutions could now operate as FHCs Combin- ininga range of services Under one umbrella Dodd Frank act 2010 legislation to make the U.S. financial systems safer and preventa Repeat of the excessive risk taking that led to 2007 to 2008 crisis Volcker rule proprietary trading Banks are prohibited from using their own accounts For sport term trading of securities derivatives I commodity futures ext. , Hedge funds and private earity funds Banks are prohibited from owning,sponsoring , having certain relationships with thes funds. or Risks investments Banks are preventedFrom Making Speculative · investment with Customer deposits: Some banks are consolidated from this rule banks with less than To billion other exceptions, , they are Investment banks serve as brokers intermediating between suppliers and Users of funds. They do not tell you what to invest they Just show you the market and sire you the tools to invest Investment banks do not offer traditional banking products They offer services in Originating Structuring and executing underwriting= The process of rasing Capital for a client by Selling Securities to investors eX Microsoft has a bis project a needs Money. Roadshow= A presentation ofsecurities an issuer makes to potential buyers. Book building= A systematic process ofgenerating I capturing and recording investor demand for shares -PP Private Placement-sale of stook shares or bands ↓ pre selected investors and institutions rather than on a public exchange Public Placement= When a company raises Capital by selling its securities to the general Public IPo= Initial Public offering FPO= follow on public offering farits securities ownership interest held by share holders in an entity realized in the form of shares ofCapital Stock. ECM= fauity Capital Markets a Financial Market , I Segment where companies raise capital by selling earity securities to investors , financial institutions help Companies paise equity Capital : SEC= Securities and exchange commission Federal agency tasked with protecting investors and mantaining fair and efficient market in the US. ABB= Activity based budgeting A methodof budgeting where activities that incour costs are recorded analyzed and researched. ABB Also Stands for Accumulated book building A form of offering in theCavity Capital Markets It involves offering shares in a short time period with little to do marketing , DCM= Debt Capital Markets , Where companies and soverments raise long term funds by trading bebt securities. financial market Inother words it helps governments and companies to borrow mones in the form of tradeable. securities at the best possible terms. Investment grade (IG) rating given to bonds and other debt securities that have a low risk of default Debt Security= debt instrument thatcan be I bought sold , , between to partiesex government band. Hy= Hish yield bonds bands that Pas , higher interest rates because they have lower credit rations than investment grade bonds They have higher chances to fail that who they pay a higher Yield to compensate investors. A BS= Asset backed Securities A type of financial investment that is Collatera- lized by an unders in Pool of assets , usually o hes that generate cash flow from debt ex Mortases Assisting trading of securities in secondary markets Brokeragel broker= A middle man who connects buyers and sellers ofstocks bonds and other Financial assets , Investment banks normalis haveoperations. M Market Making: Practice of boyins and selling Securities to provide liquidits inthe market and ensure its onsoins functionality. Research= Process of analyzing Financial instrume- Its markets and economic trends to help investors make informed decisions. Investment banks also help in asset Mansement Suchas=- Money Market Fund Pension funds , , nedse funds private earity funds. , propitars tradins bank uses its own mones to trade financial instruments· Shadow banks financial institutions that Perform Dank like activities but are not regulated in the same was as traditional banks They do not take deposits in the traditional sense They do so in away that they are not subject to government banking regulations they offer hedge funds (assressive risk Seeking investment funds that use leverage to magnify returns. Leverage: investment strategy of Using Porrome- ed money to increase the potential return on an investment. funds: a pool of Money that is allocated Fora specific purpose, they ear Money by actions as intermediaries Between large borrowers and large lenders. ex black rock Universal Banks Pros : More diversified activities and sources of funds Economies of scale and synergies Cons : High supervision costs · Contagious risk among asset side and liability side operations ·Risk of crowding out od other sources of credit Risk of Moral Hazard and conflict on interest Specialized Banks Pros: Competitive advantage Economies of Scope Easier Supervision More efficient allocation of capital to the economy. Cons : Higher Concentration of risks Need for longer term funding. Pro only for you: Conflict of interest Banking Basics 2 kes stones of a bank Balance Street and POL balance Sheet Assets Liabilities + equity Loans Deposits (under fund dep osit scheme Other bank deposits other financial Assets other liabilities except otherAssess Earity P&L Gain in the banks P & L= Fair value of financial Eassets fair value of financial liabilities Fair value of financial Loss in the Banks P & LI assets E- fair value of financial · liabilities Net interest income (ND1) The difference between interest income and interest expense. N1l= interest income- Interest Expense Interest income The interested assetta credit lines etc. Interest expense : the interest the banks Pays For the resources is needs to finance the assets as customer deposits debt and other liabilities. , , Done exercise 46. 5- 9 : 37· 5 M Efficiency Ratio Shows now well the bank's Manager Control their back office expenses. Efficiency ratio allow analysts to assess the performance of banks. Operating expenses Efficiency Ratio Gross Margin operating expenses: The expenses incurred by the institution in its business operations Thes are typically divided into three groups ①. Personnel costs & other operating expenses also known as "Open" cadvertising water , electricity, yas supplies ,e , ③ Depreciation Provisions (associated with the impairement or depreciation of physcal assets and the amortization of"CAPEX" or iveste- ment. D Capital expenditure Gross Margin Composed of all the income generated by a final- cil institution in its business Efficiency Ratio 0 , To earn 100 the bank needs to spend 66 E Return on Assets CROA indicates the profitability in relation to its total assets. A higher ROA Means a compans is More efficient and productive at Managing its balance sheep to generate Profits. ROA= Net income Total Assets Return on Equity (ROEL Shows the relationship between the bank's profit and the investors return It Measures how efficient the bank is at generating Profit from Mones that investors have Put into the business. · Most non financial companies focus on growing earning per share CEPS) While Rof is the key Metric for banks ROE= Net income Equity interest Expense interes income ↑ ~ Bank 1= 1000:00 50 800- 007 24 50-24= 26-7 Net income Rot 20 0026 =. ROE3 expense= 27 Bank 2 Interest income= 50 interest 50- 27 : 23-2 Net interest income Roth Return on Capital (ROC) Measures a Company's net income Relative to the sum of its debt and equity value Capital= $1000 debt = $10 , 000 ↓ If income= 500 =0. 4 Up 500 Rock 1000- 10 , 000 ↓ 4 75 %. Banking Basics 3 focus on Risk Management Management Model based on Prudence and Proactivity ① Credit and Market risk credit risk! The risk that a borrower or counterparts may default on their oplisations and fail to repay debt Market risk : The risk of losses from changes in the market factor like stock prices, interest rates Foreign exchange rates, and commodity prices. , Dearfult risk : A lender takes that a borrower will bot make the required Paymentson a debt obligation. ② structural Risk The risk that arise from a bank fundamental structure including its balance sheet composition , fundingsources and , Overall Business model These risks Can threaten the institutions lans term Stability and solvency if not properly Managed They differ from operational or Market risks as theyare tied to the institutions Strategic decisions and economic environment- eX Interestate risk Liquidity risk def The Possibility that an individual business or Financial institution cannot Meet its short term dept obligations. def 2: The possibilityan institution will be unable to obtain funds such as customer depositsorborrow ed funds at a reasonable price or within a necessary period to Meet its financial obligations , ③ Capital Management Risk Capital Managemen: Efficiently Utilizing the company Financial resources to ensure the organization Meets , its financial obligations and achieve its goals and Objectives. · The Risk= Bank doesn't have enough capital Met ~ ⑪Strategy Merges and Avisitions Risk Risk arise when a bank engages in M & A activities to achievgrowth expand into New Markets or enhance its competitive position but faces with Challenges that threaten the success of the transaction or its integration 5. Non Financial risks Conduct , lesal , Fraud. , Risks that can significants impacta bank ope- rations , Reputation and compliance , These risk often stem from operational lesal regulatorsor environmental factors and can lead to losses if not effectively managed. Systematic institutions: Financial institution whos Failure Mas trigger a financial crisis Also referred to as to bis to fail. Role of Regulators and supervisors in banking - > To protect the citizen's deposits - ToSuarantee the financial system Stability - To avoid the use of taxpayers Money creation of the banking Union = Supervision7 Resolution + Deposit Guarantee Scheme Resolution= Restructuring of a Dank Response to a crisis Basel 111 An international Regulatory accord for reforms designed to mitigate risks within the international banking section by requiring Banks to have more capital on hand Derivative Markets Financial MarketsWhere derivative instruments are traded Derivatives: Financial contracts whose value is derived. From the performance of underlying assets such as Stocks/Bonds commodities interest rates , , Credit rating-encies credit history Provide retail and institutional investors withinfor mation that determines whether issuers of bonds bebt instruments and fixed income securities will Meet their obligations Shadow banking- > provide credit while banks Can dot Systemic Risk : the possibility that an event at the company level Coll triggersevere instabilityor collapsean entire industryor economy Macro Prudencial Policies -made be the government Financial policies aimed at ensuring the stability of theFinancial system as a whole , by addressing risks that can accumulate across institutions andmarkets Structural Reforms significant changes in the organization. Regulation or functioning of the banking system aimed at Enhancing Stability , efficiency and resilience ↳often implemented aftera financial crisis Crisis Management and Resolution framework tools and processes designed to handle distressed banks effectively to minimize Systemic risk and protect the economy. General objectives to prevent and solve a crisis 1. Strengthen banking Solvency Solvency: The ability of a company to meet its longterm debts and financial obligations. Solvency risk: that a bank cannot Meet Maturing obligations because it has a Negative not worth 2.Mitigating Systematic risk 3. Minimizing tax PayerCost 4. Improve resolvability * Note: Abalance in Regulation is necessary for the sake ofthe industry. ↑ Over regulation risk of Financial system suffocation loans granting , Paralysis Lack of Regulation Riskof the financial System Collapse excessive and uncontrolled south => balance for successof theindustry , Challenging environment New Players, Macro and innovation, difficult What is the environment the financial system faces? 1. Complex economic Context Ceconomic Crisis some causes Some consequences subprime Mortase Dubble (Revision Of Regulation and distruston Mortages issued supervision in banking to borrowers with low credit ratings These Mortgages , Often had terms that made them Affordable initially but became unaffordable over time ultimately Burstingout the bubble and creating a crisis European Sovereign debt Crisis :High levels Of government debt in several eurozone count- ries leading to doubts about their ability to repay loans and causing turmoil in the Financial markets Complex and Opale finan-sovereign bank doom loop cicl Products : Sothetic Regulators Pressure Thus consequences-> Impacts of new rules greater capital requirements Solvency and resolution Framework It development and actions required level Playing Field= operational environment Where all participants in the banking sector regardless of their size and structure compete on equal terms Complex context- > Interest rates as consequence-> Historically low flatfish Slope ↳difference between short term and long term rates is very small and both are at low levels historically Financial Margin Pressure= The sap between the interest Banks earn and the interest they Pay set smaller , making it harder for banks to generate profits. -- this comes from changes in interest rates. kwinterest environment banks earn less on loans Complex context- > slowdown of emerging Markets Growing pressure, search for new income Sources and therefore riskier activities 2. Change in Consumer behaviour we are in a new macro and institutional Context New competitors emerge in many Sectors and there is a change in customer expectations Changes in customer behaviour and in their expectations constantly connected customers Service available and enable 24% 7· 365 Greater risk of disloyalty used to digital experiences Flexible and customized Service Proactivity expected ↳Banks Must anticipate and adapt to evolving customer preferences and habits rather than reacting to them after they occur. Use of Multiple devices and applications Mobile tablets,offices , looking for the best experience for their financial needs 3 impact of New technologies Big data - Blockchain= decentralized distributed and public digital ledger that is used to record transactions across Many computers - Artificial intelli sence - Data Andistics ~ Cloud => Biometrics (Face idI % New Players Joining the valueChain New competitive environment The growing competition is a challenge , has to become a part of bank's DNA innovation & - > Areas Affected by new players & · offering Support 24x7x365 · Efficiency in technology · Asilits · Identifying thedigital experience Y · Clients icursory" · Regulation for Fintechs Fintechs= The use of technology to deliver financial services and products to consumers , · more competitive conditions than traditional banking · Dependingon whichCountry theyare based in · Some soverments Provide incentives (UK, 12). The future of the banking System , supervisors and Regulators *There is a need for regulators and supervisors to react They Cannot forbid Fintech to operate - > However this have toensure the same same rules for all -Regulation and SupervisionCan alter the speed and magnitude of transition both have to adapt quickly Financial Regulation is still evolving , following these trends Regulatory Framework - Home vs host regulators Home Regulators: The regulatory authority in theCountry where the bank is head avartered or incorporated Host Regulators: The regulatory authority in the country where the bank operates branches subsidiaries , or other business entities, outside its home country - Importance for international Players proportionality - smaller and less complex banks Claims for a single regulation Macro prudential-development and use of policies and instruments designed to maintain Stability ofthe financial System - More tools to avoid cyclicality Sustainable finance Capital Need to revisit Topic 3 A Primer on bank Regulation Bretton Woods (1944-1973) gold was the under the Bretton woods system, basis for the us dollar and other currencies were pressed to the us dolar value · The use would be the only currency convertible into Gold on demand. ·currencies were traded against the dollar and not against Sold Similar to the Sold Standard The international agreement also set up a system of rules institutions and procedures to Regulate , the international Monetary system these accords established the IMF and the international bank for reconstruction and development which todas is the world bank ~ provides loans International Monetary fund IMF Purpose : Foster Global Monetary Cooperation , Secure Financial Stability Facilitate international trade : Promote high employe- ment and Sustainable economic growth and , reduce poverts around the world. world bank Purpose: Reduce Poverts be lending mones to the governments of its poorer members to improve their economies and to improve the standards of living of their people. How did the bretton woods system affected banking 1.Stable exchange rates and Predictable Dankin environment · Fixed exchance rates reduced currency risks creating a more Stable environment for banks to engage in international trade finance and invester - ments 2 Expansion of international Banking 3 limited speculation Speculation: The Act of investing in opportunities with high risk of loss but also with the Potential for significant financial said , 4 focus on traditional banking traditional deposit taking lending activities rather than Speculativefrad ins activities * The Bretton woods system effectively came to an end in 1970s when President Richard M Nixon alarmed by outflows of sold announced , that the us do longer would exchange gold for us currency. * from that year forward the world currencies were all floating After the collapse of the Bretton woods it affected in banking by · Rise in foreign exchance market activity · Increased volatility and Risk · Growth of eurodollar Markets · Liberalization of banking regulations · Expansion of Risk Management tools · Shift towards universal banking ↑ Nancial Crisis Definition: When financial instruments and assets decrease Significantly in value , As a Result bossinesses have trouble meeting their financial obligations. · financial institutions lack sufficient cash or Convertible assets to fund projects and meet immediate needs · Investors loose confidence in there assets and consumers incomes and assets are compromised. Making it difficult for them to pas their debts. Some Possible triggers of a financial Crisis -Asset price booms and busts Real life example Tulip Mania 1634 : Prices of tulips skyrcketed dre to high demand in 1637 it burst this prices , creating it to collapse investors were forced , to sell their bulds at any priceand to declare ban tropes in the process -credit booms and busts Real life example : United States in the late Talos Classification of financial crisis Debt Crises : A Situation in which a country is unable to pas back its government debt (tax Revenue less than government expenditure). Currency crises : Sharp decline in the value ofa country · currency. This decline in value nesatively affects an economy by creating instabilities in exchange rates. (Meaning and unit of a certain currency no longer buss as much as it used to in another currency). Banking crises : A Banking crises occurs when many banks in a country are in serious solvency or ligidity problems at the same time. Sudden stops : characterized by a Swift Reversal Of international Capital Flows , declines in production and consumption , corrections in asset prices- it has also be accompanied bya currency crisis a banking crisis ;or bothe Topic 3 A Primer on bank Regulation 2 What is the curren Situation of the european banking sector. · High Capital Adequacy · liquidity coverage ratios have remained well but are robust. · High profitability Challenges · Rising credit risks especially in the Commercial real estate Sector What has been the Main Consequence of the war in ukraine in the Banking. Sector. · inflationary pressure. · Tightening Monetary Policy (ECB and other Central Danks raised Policy rates Significantly reversing years of ultra louse Monetary Policy · Asset avality concerns · cross border challenges · Increased Regulations across banks , What is interest rateformalization =Central Banks raising interest rates to more typically levels after a period of ultra low rates What is the impacton bank profitability ~Increases bank profitability bs widening letinter- St Margins (as they can charge hisher rates on loans While Keeping deposit rates relatively low ·Itmay also raise funding costs demand, increase credit risk. , Reducean leverage, Capital Adeavacy and liquidity The Problems behind financial Crisis Flaws in regulation and supervision · Late detection Problems and unequal supervision · Insufficient leves of Capital and ligridity. · systemic risk accumulation and increasing inter- connectedness · Lack of bank Crisis Framework ·Deficient Risk Culture · Complexity of financial products and lack of transparency. Regulators Tsunami Wave to new stricter regulations imposed to the banking Sector after a financial crisis. FSB (Financial Stability board): International pooestablished to monitor and adress vulnerabilit ties it theslobal financial system- · Its primary role its to Promote financial Stability by Coordinating Regulatory reforms and developing Policies to mitigate risks. International Institutions that has preventor help in a crisis 620= Shaping and strengthening global architecture andsovernance on all Major international economic issues · Its composed of the20 greatest economies in the world. IosCo (International organization of securities Commissions) · Regulates the World Securities and Markets & A IS < International association of insurance Supervisors) · It develops and assists in the implementation of principles Standards and guidanceas well as Supporting Material For the supervision of the insuranceSector- BCBS(Basel Committee on BankingSupervision · Prudential regulation of banks and providesa forum For regular cooperation on banking supervisors matters. A more deep understanding of Basel 11I what does it cover : Dual approach Strengthens microprudencial regulations and supervision and adds a macro prudencial overlay that includes Capital buffers. Baselmusbe in future From Basel 11 to Basel III on Basel 111 Architecture Basel III was intended to strengthen bank Capital requirements by increasing bank liaridity and decreasing Dank leverage Bases III was created by Basel Committe on Bankins Supervision (BCBS( · It was introduced to adress the weakness Revealed by the 2007-2008 Global Financial Crisis. Basel III it an updatedModel of Basel 1 in 2016 that earlier was Basel I in 7988 ,. Basel III is the current regulatory framework For Global Banking Supervision · It was introduced in 2010 but successfully started t be implemented in 2013. Pillar 1 : Definition of Capital International - financial Reporting standards I homs a instruments CET 1 : Common equity Tier 7 : The highest Quality Capital. At 1 : Additional tier 1 : must have the ability to absorb losses on a going concern basis , Colos: Continent Convertibles : A Type of hybrid financial instrument used by banks to raise Capital. These Ponds are designed to convert into Cavity. 2used normally when CETT Fall below 5 , Tier 2 : Supplementary Capital designed to absorb losses from a some concern basis , subordinated debt ! Class of debt that ranks lower. in Priority compared to other forms of debt DoNU: Point of Non viability) Point out which a financial institution financial condition becomes So for that is no longer consider viable. · Pillar 1 Main Components -NSFR Minimum Capital Reavirements DM (-CCD Antcyclical Duffer ! Addressing systematic risk that arise from credit growth and asset price bubbles, ~ D-sib--the same but domesticalis. 6-SIB : C globally Systematically important buffer) huntains Minimum Regulatory Capital for the presented risks to alish more closely to the banks actual Risk of economic loss , Standard approach : A method that assis risk weights to different types of exposure based on external ratings on predefined criteria. is typically used be smaller or less Complex banks that do not have the systems to develope their own rist models. ex : credit ratings. Internal Model approach : Allows banks to use their own internal risk models to estimate certain types ofrists , is more sophisticated and tailored but reavires regulatory approval and robust risk Management Systems. Banking Book : Composed by the assets on a bank's balance sheet that are expected to be held to Maturity customer loans and deposits from retail and corporate customers. (applicable in Standard and internal models can be used in both methods of RWA. ~ Tradin book : Assets that are not intended to 9 be held until Maturity securities held in a , trading book must be elisible for active trading but also debt commodities , foreign exchange, ivatives and other financial contracts· der- -7 ↑ CET1 · Common equity Tiery must be at least 4. 5 % Of RWA Tier 7 : must be at least 6 %Of Rwa Total Capital must be at least 8 % of RWA , CCB : Capital Concentration Buffer is designed to absorb losses during periods of financial and economic stress. · The CCB must be met exclusively with common equity and has a total of 7 % · financial institutions that do not maintain the CCB faces restrictions onPayouts of dividends , backs and bonuses. share buy , Counter cyclical Capital Buffer within a range of 0% and 2. 5 of Common equity is implemented according National circumstances· · This buffer serves as an extension to the Capital Conservation Buffer. Totall Cet 1 Got & ↳Tier to to o Tier 2 I. Total Ratio E %, Pillar 7 : Tier 1 leverage ratio Basel III introduced a Minimum "leverage ratio" its Calculated by dividing fier 1 Capital by the banks total consolidated assets. * The higher the tier + leverage ratio is the higher the likelihood that thebank Cord Wa liquidity Coverage Ratio CLCR) -CHALA) · Ensures that sufficient levels of high quality licrid assets are available for one month Survival in a severe stress Scenario. Net Stable Funding Ratio (NSFRI · Promotes residence over long term time horizons by creating more incentives for financial instituti ons to fund their activities with more Stable sources of fundingon an ongoing structural basis ~ CRD v : Capital Requirements Directive CEU Parlament) Risk based Capital Reavirements CET 1 Ratio = 0. 18:13. :y Tier 1 Ratio is this Case is the same value than CET 1. Total Capital Ratio = Tier 1 + Tier 2 0 - 74 = I 14 6%. * This is everything you need to calculate When they ask you rist based Capital requirements Hish quality liquid agget stock ~ Tier 1 leverage Ratio 0. 0868. 6 % LCR (Liquidity Coverage Ratio 1: 57= 157 % = NSFR (NetStable Funding Ratio). 0. 74= 74 % = question 1 : CETT= 13. Total Ratio , 74: 6) 827 13: 8285 Th/ %2105 % %, Tier 1= 13. 8% 13 , Yes it includes all Capital Reavirements and it Also includes Buffers Q2. LCR= 157 and 757T 100% So Yes it follow all LCR Requirements 93 NSFR= 74 % and 74 %