Professional Documents
Culture Documents
Yes else to make higher profit banks may take unnecessary risk and may lead to domino effect
Probability of default
EAD
RAROC = LGD*EAD*PD
Q) Do banks require regulations to ensure that they can manage their risk?
To identify and measure risks and take appropriate steps To mitigate them. They have to follow RBI
guidelines for compliance
Regulations ensure uniformity among all the banks while reporting/ disclosing earnings, reduces risk of
fudging up numbers
Summary -
Originate and hold model – Take short term deposits and create long term loans
Originate to distribute model -
Risk adjusted return on capital
Regulatory capital – meet min capital requirement
Economic capital – set aside FIs to support business decisions