Tier 1 capital is the money that's at the core of every bank. But, like everything else in banking, it's subject to definition, and bankers still can't agree on the terms. Senior Editor Paddy Hirsch explains.
@w375928 90% of reserves are lent out the other 10% is what is known as the "reserve requirements" that must be held at the fed. These are still lent to other member banks at the fed funds rate. The DISCOUNT RATE is the rate the banks borrow money directly from the fed at.
This is like borrowing money from your brother(no questions, worse rate) or your parents (lotsa questions, interest free) ......In 2008 banks would not lend to each other even at the fed funds rate!
Am I right in assuming Tier 1 capital includes retained earnings, what about reserves held at the central bank? Reserves must be considered Tier 1.. right?
Paddy, I have read many articles on Basel lll and in fact i am writing a paper on it, the way you have explained it is the most simplest way and so easy for everyone to understand.
@w375928 90% of reserves are lent out the other 10% is what is known as the "reserve requirements" that must be held at the fed. These are still lent to other member banks at the fed funds rate. The DISCOUNT RATE is the rate the banks borrow money directly from the fed at.
This is like borrowing money from your brother(no questions, worse rate) or your parents (lotsa questions, interest free) ......In 2008 banks would not lend to each other even at the fed funds rate!
TheSpecificChad 3 months ago
@w375928 that is tier 3. they are just depositers money
TheSpecificChad 3 months ago
Cheers mate!
cpu201 5 months ago
Brilliant explanation. Merci
BIueViolin 7 months ago
Thank you so very very much!
Dorresteijn1989 1 year ago
Am I right in assuming Tier 1 capital includes retained earnings, what about reserves held at the central bank? Reserves must be considered Tier 1.. right?
w375928 1 year ago
you are amazing. I like your lectures
malsaqa 1 year ago
Bravo!
pomoxyz 1 year ago
Paddy, I have read many articles on Basel lll and in fact i am writing a paper on it, the way you have explained it is the most simplest way and so easy for everyone to understand.
I Really appreciate your efforts.
vickyaaa123 1 year ago
too good. as always. made it so simple to understand.
vickyaaa123 1 year ago