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Changing The Game; New Framework Of Capital Adequacy Ratio

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  • Abdelbary, Amr

Abstract

The supervisory committees governed the banking supervision on all over the world which becomes a core activity Since the financial crisis of 2008. Capital adequacy ratio (CAR) is one of the measures which ensure the financial soundness of banks in absorbing a reasonable amount of loss. The objective of this paper is to develop a framework for measuring the capital adequacy by assessing the bank’s risks according to the basics of Basel’s norms in respect of the component of tire 1&2 of capital adequacy. The model used the relationships between equity, deposits, loans and assets to determine the risk ratio, which is calculated in regard of retention ratio. As liquidity risk is usually regulated from a micro prudential perspective, a better knowledge of these interactions among banks may have very important consequences on the design of macro prudential policy.

Suggested Citation

  • Abdelbary, Amr, 2019. "Changing The Game; New Framework Of Capital Adequacy Ratio," MPRA Paper 93072, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:93072
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    File URL: https://mpra.ub.uni-muenchen.de/93072/1/MPRA_paper_93072.pdf
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    References listed on IDEAS

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    1. Mendoza Rufo & Rivera John Paolo R., 2017. "The Effect of Credit Risk and Capital Adequacy on the Profitability of Rural Banks in the Philippines," Scientific Annals of Economics and Business, Sciendo, vol. 64(1), pages 83-96, March.
    2. Natalia Konovalova & Snezhana Dalecka, 2016. "Analysis and evaluation of capital adequacy in Latvian banking system," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 5(1), pages 107-123.
    3. Miller, Merton H., 1995. "Do the M & M propositions apply to banks?," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 483-489, June.
    4. Van Gestel, Tony & Baesens, Bart, 2008. "Credit Risk Management: Basic Concepts: Financial Risk Components, Rating Analysis, Models, Economic and Regulatory Capital," OUP Catalogue, Oxford University Press, number 9780199545117.
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    Cited by:

    1. Suha Alawi, 2019. "Relationship between Capital Requirement, Ownership Structure, and Financial Performance in Saudi Arabian Listed Companies," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(9), pages 1077-1090, September.

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    More about this item

    Keywords

    Capital adequacy ratio (CAR); Liquidity; Credit Risk; Loan to Deposits (LTD); Equity to Assets (ETA); Retained Earnings (RE).;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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