This paper provides an overview of equity according to the HGB and regulatory capital as defined by Basel III and also its functions.
The concept of equity is used in different contexts. There are no regulatory provisions on capital adequacy for non-banks other than the capital stock. Nonetheless the legislature of credit institutions and insurance companies considered it to be necessary to regulate the amount and adequacy of equity due to the particular risks of the banking and insurance business.
In the German Banking Act (KWG), the definition of liable capital creates a bank-specific equity concept that differs from the one of the balance sheet equity according to the German GAAP (German Commercial Code (HGB).
On 16 December 2010, the Basel Committee on Banking Supervision published its framework "Basel III" in response to the banking crisis, and over the years it has been supplemented and revised.
Inhaltsverzeichnis (Table of Contents)
- 1 Introduction
- 2 Basics
- 2.1 Definitions
- 2.1.1 Capital under German GAAP
- 2.1.2 Regulatory Capital
- 2.2 Functions
- 2.2.1 Capital under German GAAP
- 2.2.2 Regulatory Capital
- 2.1 Definitions
- 3 Analysis
- 3.1 Comparison
- 3.2 Implications
- 4 Analysis including deductions
- 5 Conclusion
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to compare and contrast equity under German GAAP (HGB) and regulatory capital as defined by Basel III, analyzing their functions and exploring the possibility and implications of synchronizing these concepts. The analysis considers the impact of including Basel III deductions.
- Definition and function of equity under German GAAP.
- Definition and function of regulatory capital under Basel III.
- Comparison of equity under German GAAP and regulatory capital.
- Implications of the differences between these two concepts.
- Feasibility and usefulness of synchronizing both concepts.
Zusammenfassung der Kapitel (Chapter Summaries)
1 Introduction: This introductory chapter sets the stage by highlighting the differing uses of the concept of equity, particularly the distinctions between capital adequacy for non-banks and the regulatory requirements for credit institutions and insurance companies due to their inherent risks. It introduces the German Banking Act (KWG) and its unique bank-specific equity concept, contrasting it with balance sheet equity under German GAAP (HGB). The chapter also mentions the Basel III framework and its European implementation via CRD IV, emphasizing its role in strengthening the banking system's resilience. The paper's objective is clearly stated: to provide an overview of balance sheet equity and regulatory capital, compare them, analyze the implications, and explore the potential for synchronization, considering the effects of Basel III deductions.
2 Basics: This chapter lays the groundwork for the comparison by defining and explaining the differences between capital under German GAAP (HGB) and regulatory capital. It emphasizes that the concepts differ significantly, as do their functions. The chapter delves into the definitions of each, highlighting the different components and legal frameworks that govern them. For instance, it describes equity under German GAAP as funds provided by owners, contrasting this with the broader definition of regulatory capital. The chapter carefully explains the diverse functions of both types of capital, preparing the reader for the comparative analysis in subsequent chapters.
3 Analysis: This chapter presents a detailed comparison of equity under German GAAP and regulatory capital, analyzing similarities and differences. It thoroughly examines the implications of these differences, providing a comprehensive understanding of the practical consequences of the discrepancies between these two capital concepts. This chapter serves as a crucial bridge between the definitional groundwork laid in Chapter 2 and the discussion of deductions and synchronization possibilities in later chapters. It carefully analyzes the disparities in both the quantity and quality of equity as defined by their legal frameworks.
4 Analysis including deductions: This chapter extends the analysis by incorporating Basel III deductions into the comparison of equity under German GAAP and regulatory capital. It explores how the inclusion of these deductions alters the results presented in Chapter 3, providing a more nuanced and complete picture of the relationship between these two capital concepts. By considering the deductions, this chapter adds an essential layer of complexity to the analysis, offering a more realistic and complete assessment of the synchronization possibilities.
Schlüsselwörter (Keywords)
Regulatory capital, Basel III, German GAAP (HGB), equity, capital adequacy, banking regulation, financial stability, credit institutions, comparison, synchronization, deductions.
Frequently Asked Questions: A Comparison of Equity Under German GAAP and Regulatory Capital
What is the main topic of this document?
This document comprehensively compares and contrasts equity under German Generally Accepted Accounting Principles (HGB) and regulatory capital as defined by Basel III. It analyzes their functions, explores the implications of their differences, and investigates the feasibility and benefits of aligning these concepts. The analysis also considers the impact of including Basel III deductions.
What are the key themes explored in this document?
The key themes include defining and comparing equity under German GAAP and regulatory capital under Basel III, analyzing their respective functions, exploring the implications of the differences between them, assessing the feasibility of synchronizing both concepts, and evaluating the impact of incorporating Basel III deductions into this comparison.
What are the key objectives of this analysis?
The primary objective is to provide a thorough comparison of balance sheet equity (under German GAAP) and regulatory capital (under Basel III). This involves defining both concepts, examining their functions, analyzing the implications of their differences, and exploring the potential for synchronization, with a specific focus on the effects of Basel III deductions.
How does the document structure its comparison?
The document is structured into five chapters. Chapter 1 provides an introduction, highlighting the differences in equity concepts across different financial institutions and outlining the paper's objectives. Chapter 2 defines and explains the fundamental differences between German GAAP equity and regulatory capital. Chapter 3 compares both concepts and analyzes the implications of their discrepancies. Chapter 4 extends the analysis by incorporating Basel III deductions. Chapter 5 concludes the study.
What is the significance of including Basel III deductions in the analysis?
The inclusion of Basel III deductions adds a layer of complexity and realism to the comparison. It allows for a more nuanced understanding of the relationship between German GAAP equity and regulatory capital and provides a more accurate assessment of the potential for synchronization.
What are the key differences between equity under German GAAP and regulatory capital under Basel III?
The document highlights significant differences in both the definitions and functions of equity under German GAAP and regulatory capital under Basel III. German GAAP equity focuses on owner-provided funds, while regulatory capital has a broader definition and considers various elements to ensure the financial stability of institutions. Their functions also differ significantly, reflecting different accounting and regulatory objectives.
What are the implications of the differences between German GAAP equity and regulatory capital?
The differences between these two capital concepts have significant practical implications for financial institutions. The document explores these implications in detail, highlighting the potential consequences of the discrepancies between the two frameworks for financial reporting, risk management, and regulatory compliance.
What is the potential for synchronizing German GAAP equity and regulatory capital?
The document investigates the feasibility and potential benefits of aligning German GAAP equity and regulatory capital. This involves evaluating the challenges and opportunities associated with such a synchronization, considering factors such as accounting practices, regulatory frameworks, and the overall objectives of financial reporting and regulatory oversight.
What are the key terms used in this document?
Key terms include regulatory capital, Basel III, German GAAP (HGB), equity, capital adequacy, banking regulation, financial stability, credit institutions, comparison, synchronization, and deductions.
- Quote paper
- Sarah Brockmeyer (Author), 2017, Regulatory Capital and Capital under German GAAP. Comparison and Implications, Munich, GRIN Verlag, https://www.grin.com/document/995243
