Capital Adequacy

Name gobind shergill
Group 2A
Id no C3084433

ACFI2005: Capital Adequacy Project

Introduction:
There is a close relation between the capital adequacy and the financial system but it is important to have an overview before get to the more detailed study of what is going on in the financial system. There is a constant flow of cash and funds through the financial system due to the financial institutions as they assist money movement among the borrowers and lenders (lecture notes, chapter 8, 9, 15) a financial institution is basically a firm like a bank which acts as a safe house for depositors to keep their money and also provide loan with interest to others and this how they expand the institution. This is the basic concept of the way the economics works in a country and also how a bank functions. All the banks are connected to one another and if there is a problem in one of the banks the bank looses it image in the minds of the people and if it’s a big problem it can cause disaster within the financial system of the country and this can only be caused due to shortage of liquid cash. To have a proficient system the bank has to be sure to be liquid to avoid any problems. (Chapter 1) To help avoid this problem the government lays down regulations for the banks through prudential supervision (Chapter 2). The Australian regulatory power is Australian Prudential Regulation Authority (APRA), whereas in Singapore it is Monetary Authority of Singapore (MAS). The key concept of their job is to assure the people that their money is in safe hands. Keeping the capital safe is essential as it assists the bank to expand and help them pay off any debts when needed (Chapter 2). In context to if there is an emergency as the government has some control on the banks it asks them to keep some money on the side. (http://moneyterms.co.uk/capital-adequacy/) This is called Capital Adequacy.
Information Source:
PowerPoint lecture 1, slide 8, 9 and 11 and lecture 2, slide 15,

References: Basle 1988, ‘International Convergence of Capital Measurement and Capital Standards’, Basle Committee on Banking Supervision, vol.1, no.1, p1-28. Brenton G., Carlos S & Geoffrey S 2000, ‘Capital Management of Deposit Takers: The impact of Prudential Requirements’, Australian Prudential Regulation Authority, vol.1, no.1, p 1-33. Conclusion: After doing research in groups and alone and collecting information the Basel system is very helpful in stabilizing the financial position it has helped Australia a great deal it achieving milestone and becoming the 4th largest fund management industry.(lateral economic, 2007) and also discuses the ways other countries may use it too, as it explains the pros and cons of both the Basel and the AFS. Reference: Lateral Economic 2007, ‘Other people’s money II: Making Australia a supplier of funds management to the world’, Lateral Economic, vol. 2, no. 1, p. 2.