View source for Risk based capital

{{infobox4
|list1=
<ul>
<li>[[Shareholder value added]]</li>
<li>[[Coverage ratio]]</li>
<li>[[Capitalization ratio]]</li>
<li>[[Debt to total assets ratio]]</li>
<li>[[Functions of financial management]]</li>
<li>[[Goodwill]]</li>
<li>[[Banking book]]</li>
<li>[[Debt management ratio]]</li>
<li>[[Asset base]]</li>
</ul>
}}



'''[[Risk]] based capital''' (RBC) is a main point in the world of banking regulation. RBC is approproated to improve the [[identification]] of the risk inherent in a bank's operations. Risk based capital refers capital as evaluated in '''Basel's standards''' to therisk-weighted assets called RWA <ref>	Salami A.A, 2018, p.540</ref>.</p>

Very important is to assign one of four risk weights (0, 20, 50, 100 percent) off-balance sheet items on the basis of broad judgments of relative credit risk and assets. These classes are used to calculate a risk-based capital ratio. The risk based capital focuses only on credit risk. It is not take into account another factors like liquidity and funding that affect an organization's financial condition. They also ignored factors such as interest rate risk, concentrations of [[investments]] and loans, [[quality]] and level of earnings, problem and classified assets, and quality of [[management]] <ref> Alfriend M.C, (1988), p.30 </ref>.</p>

==Tier 1 and Tier 2 capitals==
Capital, in the Basel standards, embraces  Tier 1 and Tier 2 capitals <ref>Salami A.A, 2018, p.540</ref> :
* Tier 1 capital is the bank core capital,
* Tier 2 capital includes complimentary funds, that is, liabilities other than core capital like subordinated debts,
* Addition of Tier 1 to Tier 2 capital as a proportion of RWA (TCAR) also called total regulatory or total riskbased capital ratio.

== Risk based capital in insurance companies ==
The National Association of Insurance Commissioners (NAIC) attested risk-based capital rules for life insurance companies in 1992. These policies are planned to measure exposure to four main categories of risk exploited by the insurance industry <ref> Cluff L.D, 1998, p.10 </ref>:
* interest rate,
* insurance,
* asset,
* all other business risk.
Life insurance regulators believe the major strength of the life [[insurance risk]]-based capital policies is that the rules allow regulators to close a falling [[company]] more easily and quickly that they could in the past.

== Footnotes ==
<references /> 

== References ==
* Albrecht P., (2003) ''[https://ub-madoc.bib.uni-mannheim.de/2778/1/dp03_02.pdf Risk based capital allocation]'', Papers 03-02, Sonderforschungsbreich 504
* Alfriend M.C, (1988) ''[https://fraser.stlouisfed.org/files/docs/publications/frbrichreview/rev_frbrich198811.pdf International risk-based capital standard: history and explanation]'', Economic Review, Federal Reserve Bank of Richmond, issue Nov.
* Avery R.B, Berger A.N, (1990) ''[https://fraser.stlouisfed.org/title/4494/item/494547#scribd-open Risk-based capital and deposit insurance reform]'', Working Papers (Old Series) 9101, Federal Reserve Bank of Cleveland.
* Balog D., (2010) ''[http://uni-obuda.hu/users/vecseya/RePEc/pkk/sfyr10/balog.pdf Risk based capital allocation], Proceedings of Fikusz 2010, László Áron Kóczy, Proceedings of Fikusz 2010, pages 17-26 Óbuda University, Keleti Faculty of Business and Management
* Cluff L.D, (1998) ''[https://books.google.pl/books?id=ax7BXUHC3_AC&printsec=frontcover&dq=Risk+based+capital&hl=pl&sa=X&ved=0ahUKEwjHno_kitXhAhUCpYsKHTabBUQQ6AEIKDAA#v=onepage&q=Risk%20based%20capital&f=false Risk-Based Capital: Regulatory and [[Industry]] Approaches to Capital and Risk]'', United States General Accounting Office, Washington, D.C.
* Djayadi H., Judi Adrianto H., Arifian D.,(2018) '' [https://www.econjournals.com/index.php/ijefi/article/download/7164/pdf The Model of [[Insurance]] Companies Risk Based Capital]'', International Journal of [[Economics]] and Financial Issues, Econjournals, vol. 8(6)
* Nielsen C.Y, (2016) ''[https://project.nek.lu.se/publications/workpap/papers/wp16_9.pdf Banks' Credit-Portfolio Choices and Risk-Based Capital Regulation]'', Working Papers 2016:9, Lund University, Department of Economics

{{a|Agnieszka Bednarek}}
[[Category: Financial management]]