PSAF, economic capital, and the new Basel Accord
AbstractThe 1980 Monetary Control Act requires Reserve Banks to recover their costs of providing payments services over time, including a normal return on capital-that is, the same after-tax return on equity that a private firm would require. To date, this private-sector adjustment factor has been estimated and applied as a single hurdle rate for all Reserve Bank payments services. Capital budgeting theory suggests that firms should use a different hurdle rate for each distinct type of activity according to its risks. For Reserve Bank payments services, this might entail estimating separate private-sector adjustment factors for paper-based services and for electronic services. Alternatively, a single hurdle rate of capital could be used for all services if capital were allocated to each service according to its risk.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0111.
Date of creation: 2001
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-11-05 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Edward J. Green & Jose A. Lopez & Zhenyu Wang, 2001. "The Federal Reserve banks' imputed cost of equity capital," Working Paper Series 2001-01, Federal Reserve Bank of San Francisco.
- Jose A. Lopez, 2001. "Federal Reserve banks' imputed cost of equity capital," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue aug10.
- Barnes, Michelle L. & Lopez, Jose A., 2006.
"Alternative measures of the Federal Reserve Banks' cost of equity capital,"
Journal of Banking & Finance,
Elsevier, vol. 30(6), pages 1687-1711, June.
- Michelle L. Barnes & Jose Lopez, 2005. "Alternative measures of the Federal Reserve banks' cost of equity capital," Working Paper Series 2005-06, Federal Reserve Bank of San Francisco.
- Michelle L. Barnes & Jose A. Lopez, 2005. "Alternative measures of the Federal Reserve banks' cost of equity capital," Public Policy Discussion Paper 05-2, Federal Reserve Bank of Boston.
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