ChapterFifteenTheManagementofCapital1

KeyTopicsTheManyTasksofCapitalCapitalandRiskExposuresTypesofCapitalInUseCapitalastheCenterpieceofRegulationBaselIandBaselIIPlanningtoMeetCapitalNeeds15-22

IntroductionWhatiscapital?FundscontributedbytheownersofafinancialinstitutionRaisingandretainingsufficientcapitaltoprotecttheinterestsofcustomers,employees,owners,andthegeneralpublicistoughWhyiscapitalsoimportantinfinancial-servicesmanagement?ItprovidesacushionofprotectionagainstriskandpromotespublicconfidenceCapitalhasbecomethecenterpieceofsupervisionandregulationtoday15-33

ThecharacteristicsoftheBankscapitalSomedomesticscholarsthink:Commercialbankcapitalhasadualnature,thatisequitycapital+debtcapitalTheownersequity(equitycapital),alsoknownastieronecapitalorcorecapital,debtcapitalisalsoknownasthesecondarycapitalorsubsidiarycapital.4

ThecompositionofBankscapital1.Generallymadeupofaveragecapital,preferredcapitalanddebtcapital.(1)Averagecapital：Includingcommonstock,capitalsurplusandundistributedprofitandcapitalreserveaccount.(Note:thepriorityoftheliquidationofcreditorsrightsandincomedistribution:deposit,loan,subordinateddebt,preferredstockandcommonstock)5

relatedconceptCommonstockCapitalsurplus(reserve):Referstothedifferencebetweentheparvalueandthemarketpriceofthestockwhenbanksissuesharesoradditionalnewstock.UndistributedprofitEquityreservesaccount:Reservefundswithdrawaccordingtoacertainproportionofbankassetsdedicatedtodealwithunexpectedevents,usuallyheldinequityreserveaccount.6

(2)preferredcapitalanddebtcapitalpreferredcapital：Astockwithfixedreturnsissuedbybanks(PreferredStock).debtcapital：toraisecapitalbyacapitalpromissorynoteissuedandcapitaldebentures.Capitalpromissorynote—bankiouswithdiffer