Basel Accord: Tier I & II Capital
Reading 17: Analysis of Financial Institutions
1. Why was a Tier I and a Tier II Capital structure created?
2. Taking an intuitive approach, what criterion/criteria should an item on the balance sheet fulfill to be put into either Tier I or Tier II?
3. Based on the criterion/criteria, why have allowance for loan losses been included in Tier II Capital?
4. In what real-life contexts will this classification prove useful? What are the practical applications?
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