Capital management regulatory perspective (guest lecture)
3 important questions on Capital management regulatory perspective (guest lecture)
What are the four perspectives on capital management?
- Regulatory
- Risk
- Accounting
- Corporate Finance
What are the two primary objectives of capital management?
- Optimise the capital structure (1. full fill regulatory requirements, 2. satisfy stakeholder expectations 3. determine optimal level of debt financing 4. make optimal corporate finance decisions.) --> leads to an optimal cost of capital
- Optimise performance (1. translate strategy into capital allocation, 2. optimise economic profit per business line, 3. Evaluate performance per business line, 4. Optimise capital allocation.)--> leads to an optimal return on capital
Together these two maximise value.
Regulation with respect to available capital is built on four tests
- performance ( can the bank rely on the capital component, what is the maturity?)
- loss absorption ( can the principal absorb losses in going concern?)
- subordination (how subordinated is the claim, can principal absorb losses in gone concern)
- pay-out discretion ( does the issuing institution have discretion over pay-outs related to the capital component)
The question on the page originate from the summary of the following study material:
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