And the regulators invented the Basel system of risk-weighted capital ratios, which stipulates different leverage ratios for different categories of loan, in theory to take account of the riskiness of those loans.
It has made negative economic earnings (meaning its return on invested capital has been lower than its weighted average cost of capital) every year going back to 1998 when my model begins.
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All other decisions require an 80% majority, weighted by the capital contribution of each country.
Mr Ros hopes to improve on many recent efforts to measure a firm's return over and above its weighted cost of capital.
They have to hold a minimum total capital of 8% of risk-weighted assets - that is, capital held to back the loans that they make.
It would need to nearly triple this ROIC to exceed its weighted average cost of capital ( WACC) of 8.2%.
It would need to double this to cover its 8% weighted average cost of capital ( WACC) and start earning positive economic profits.
The report also noted that Raymond James Bank's ratio of capital to risk-weighted assets was a healthy 10.2%.
Mr Miles said that the optimal ratio of core tier one equity capital to risk-weighted assets would be 19%.
From a text book perspective, Basel III requires banks to hold 4.5% of common equity, Basel II requires 6% of Tier I capital of risk-weighted assets.
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The 52-year-old Mr. Corbat is hoping to instill the right incentives through the use of score cards that will grade the 50 or so top executives based on a set of weighted goals from five categories: capital, clients, costs, culture and controls.
Along with five others, they had been forced to draw up restructuring plans after falling short of the 8% ratio of capital to risk-weighted assets that is considered the acceptable minimum by international financial regulators (by more than six percentage points in the case of Commercial Bank of Korea).
And Nationwide's balance sheet, on paper at least, is stronger than that of any of the big banks, with loss-absorbing core capital equivalent to 12.5% of risk-weighted assets, 2.5 percentage points higher than the banks' capital ratios.
All businesses are allocated capital and are measured by their risk-weighted return on equity.
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Basel II left the minimum capital requirements at 8% of risk-weighted assets.
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Basel I focused mainly on credit risk, international banks which were required to hold capital equal to 8% of the risk-weighted assets.
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Two interesting wrinkles to the latest version of these tests: banks get a one-time do over if the Fed rejects their capital plan and a key measure of risk-weighted assets has gotten more stringent.
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He refused to be drawn on what the final outcome would be, but he did not deny that expectations of banks such as HSBC that they'll be forced to hold what's known as core tier one capital equivalent to around 10% of risk-weighted assets are in the right ballpark - or about 3 percentage points more than the new 7% minimum for all banks.
On average, banks have capital equivalent to nearly 18% of their risk-weighted assets more than double the minimum specified by the Bank for International Settlements.
Since the new Europe-wide rule to strengthen banks is that they must - by the middle of 2012 - have a minimum of 9% capital on a Basel 2.5 basis relative to their risk-weighted assets, after allowing for the fall in the price of their holdings of the debts of over-indebted eurozone countries, by definition it is the banks in those over-indebted eurozone countries that emerge as weakest.
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