Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition

Asset weighting

To measure the asset base, the regulators decided in 1988 to take into account credit risk. Assets on the balance sheet together with bank commitments (the off-balance sheet transactions) are weighted by a factor indicative of their credit risk (going from 0% for non-risky OECD public debt to 100% for risky private debts).

Weighting rules for assets are shown in Figure 6.1. (Weighting for off-balance sheet items is given in the appendix at the end of this stage.)

Figure 6.1. Weighting rules for assets

Example Let us take as an example the (slightly modified) e-Bank balance sheet. Assets   Liabilities and shareholders’ equity ...