FIN 701 Lecture Notes - Lecture 9: Interest Rate Risk, Tier 2 Capital, Basel Ii
13 Apr 2016
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Asset purchases o o o individual consumers (mortgages, car loans, credit card debt) globally but not in canada so far firms (large and small) financial intermediaries. Deleveraging for fis: lower debt levels achieved by issuing capital to replace debt; lower asset levels (selling assets) or bankruptcy; additional revenue to increase retained earnings; cutting or deferring or cancelling dividends. Leveraging of governments (table 1-2, p. 18) leading to: Sovereign debt crises in developed economies (greece, ireland, portugal, spain) and then to. Absorb unanticipated losses and preserve confidence in the fi. Protect fi owners against increases in insurance premiums. To fund the branch and other real investments necessary to provide financial services. Capital: net worth = assets liabilities, book value (bv) = historical, market value (mv) = current economic. Market value of capital: mark-to-market o o o credit risk interest rate risk exemption from mark-to-market for banks" investments (long-term assets) or banking book . Preferred shares: common shares, contributed surplus, retained earnings.
