Chapter 18 Flashcards
bank failure
bank panic
basel accord
An agreement that requires that banks
hold as capital at least 8% of their risk-weighted
assets
basel committe on banking supervision
A committee
that meets under the auspices of the Bank for
International Settlements in Basel, Switzerland,
and that sets bank regulatory standards
fair value accounting
An accounting principle in
which assets are valued in the balance sheet at
what they would sell for in the market.
financial derivatives
Instruments that have payoffs
that are linked to previously issued securities
and are extremely useful risk-reduction tools.
financial supervision
Oversight of who operates
financial institutions and how they are operated.
leverage cycle
: A lending boom and then a lending
crash.
leverage ratio
A bank’s capital divided by its
assets.
macroprudential supervision
Supervision that focuses
on the safety and soundness of the financial
system in the aggregate.
mark to market accounting
an accounting method in
which assets are valued in the balance sheets at
what they would sell for in the market
microprudential supervision
: Supervision that focuses
on the safety and soundness of individual financial institutions.
off balance sheet activities
Bank activities that
involve trading financial instruments and the
generation of income from fees and loan sales, all
of which affect bank profits but are not visible on
bank balance sheets.
properitary trading
Financial institutions that trade
with their own money
regulatory arbitrage
An attempt to avoid regulatory
capital requirements by keeping assets on banks’
books that have the same risk-based capital
requirement but are relatively risky, while taking
off their books low-risk assets.
