Basic Interbank Math, Part 2
Part 1, with the introductory framework, is here. Prior to the crisis, the Basel rules “allowed” (if not downright encouraged since it was bankers that really wrote the rules through regulatory proxies) bank assets to be divided into “buckets” in order to calculate reserve ratios. The entire premise of reserve ratios, Tier 1 capital and all that, was to measure [...]
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