The Capital Risks Of Capital Risk Essay
The credit risk means that there is a possibility that the promised cash flows hold by the FIs, such as loans or securities may not be fully paid. (http://www.bis.org/publ/bcbs75.htm)
The capital risk has a board definition.
One definition of the capital risk is same to the definition of the insolvency risk. It is possibility that the business do not have enough capital to pay the sudden liability. (Text Book)
Another definition of capital risk can be separated into 2 parts, for the single investors and the business. For the single investor, it means that the there is a risk that he or she may lose part or all money invested; for the business, it means that the business have risk to lose value on its capital. The capital of the business includes the liquidity securities, factories, and equipment. (http://financial-dictionary.thefreedictionary.com/Capital+Risk)
For the bank credit risk, the bank will have possibility that the money they lend won’t be fully paid back. However, the capital risk is that the bank has possibility to fail the investment and lose all the money they invest. Also, for the insolvency risk part, it means that the bank has possibility that do not have enough capital to pay the sudden liability.
The residential home mortgage is a loan that provide to the borrower to buy a house or other residential property to live in. It is secured by the lien, so the borrowers must pay it back over a specified period of time, or the…