Banks and depository institutions are regulated by governments to disclose and handle their capital in a certain way. The categorization of assets and capital is highly standardized so that it can be risk weighted. Internationally, the Basel Committee on Banking Supervision housed at the Bank for International Settlements influence each country's capital requirements. In 1988, the Committee decided to introduce a capital measurement system commonly referred to as the Basel Capital Accords (Basel Accord). This framework is now being replaced by a new and significantly more complex capital adequacy framework commonly known as Basel II. The essential function of a bank is to provide services related to the storing of deposits and the extending of credit. ... In politics a capital (also called capital city or political capital — although the latter phrase has an alternative meaning based on an alternative meaning of capital) is the principal city or town associated with its government. ... Basel Committee on Banking Supervision is an institution created by the central bank Governors of the Group of Ten nations (see G-10). ... The Bank for International Settlements (BIS) is a financial international organization established under the Hague agreements of 1930. ... The Basel Capital Accords are a series of discussion papers issued by the Basel Committee on Banking Supervision. ... The Basel Accord(s) refers to the banking supervision Accords (recommendations to laws), Basel I and Basel II issued by the Basel Committee on Banking Supervision. ... From Wikipedia, the free encyclopedia. ...

In the United States, "depository institutions" are subject to risk-based capital guidelines issued by the Board of Governors of the Federal Reserve System (FRB). These guidelines are used to evaluate capital adequacy based primarily on the perceived credit risk associated with balance sheet assets, as well as certain off-balance sheet exposures such as unfunded loan commitments, letters of credit, and derivative and foreign exchange contracts. The risk-based capital guidelines are supplemented by a leverage ratio requirement. To be “well-capitalized” under federal bank regulatory agency definitions, a bank holding company must have a Tier 1 capital ratio of at least 4%, a combined Tier 1 and Tier 2 capital ratio of at least 8%, and a leverage ratio of at least 4%, and not be subject to a directive, order, or written agreement to meet and maintain specific capital levels. A financial institution acts as an agent that provides financial services for its clients. ... The Federal Reserve System is headquartered in the Eccles Building on Constitution Avenue in Washington, DC. The Federal Reserve System (also the Federal Reserve; informally The Fed) is the central bank of the United States. ... Credit risk is the risk of loss due to a counterparty defaulting on a contract, or more generally the risk of loss due to some credit event. Traditionally this applied to bonds where debt holders were concerned that the counterparty to whom theyve made a loan might default on... A letter of credit, also referred to as an LOC or LC, is a document issued by a financial institution which essentially acts as an irrevocable guarantee of payment to a beneficiary. ... In mathematics, the derivative is one of the two central concepts of calculus. ... ... A bank holding company is a company that owns two or more banks. ... Tier 1 capital is the core measure of a banks financial strength from a regulators point of view. ... Tier 2 capital is a measure of a banks financial strength with regard to the second most reliable forms of capital, from a regulators point of view. ...

Ratios

 Tier 1 capital ratio = Tier 1 capital / Risk-adjusted assets 

 Total capital (Tier 1 and Tier 2) ratio = Total capital (Tier 1 and Tier 2) / Risk-adjusted assets 

 Leverage ratio = Tier 1 capital / Average total consolidated assets 

 Common stockholders’ equity ratio = Common stockholders’ equity / Balance sheet assets 

Example

Capital ratios in Citigroup at the end of 2003. ([1]) This article needs to be cleaned up to conform to a higher standard of quality. ...

(1) Tier 1 capital divided by adjusted average assets.

(1) Tier 1 capital excludes unrealized gains and losses on debt securities available-for-sale in accordance with regulatory risk-based capital guidelines. The federal bank regulatory agencies permit institutions to include in Tier 2 capital up to 45% of pretax net unrealized holding gains on available-for-sale equity securities with readily determinable fair values. Institutions are required to deduct from Tier 1 capital net unrealized holding losses on available-for-sale equity securities with readily determinable fair values, net of tax.

(2) The increase in intangible assets is primarily due to the acquisition of the Sears credit card portfolio in November 2003.

(3) Represents unconsolidated banking and finance subsidiaries.

(4) Includable up to 1.25% of risk-adjusted assets. Any excess allowance is deducted from risk-adjusted assets.

(5) Includes qualifying subordinated debt in an amount not exceeding 50% of Tier 1 capital.

(6) Includes risk-weighted credit equivalent amounts, net of applicable bilateral netting agreements, of $39.1 billion for interest rate, commodity and equity derivative contracts and foreign exchange contracts, as of December 31, 2003, compared to $31.5 billion as of December 31, 2002. Market risk-equivalent assets included in risk-adjusted assets amounted to $40.6 billion and $30.6 billion at December 31, 2003 and 2002, respectively. Risk-adjusted assets also includes the effect of other 88off-balance sheet99 exposures such as unused loan commitments and 88letters of credit99 and reflects deductions for certain intangible assets and any excess allowance for credit losses.

See also

• Bank regulation