DLC overview - Capital & Reserve Ratio discussion

[JohanPB]

Are you sure that it is [Loans to Customers] / [Equity capital] ratio, not the other way round [Equity capital] / [Loans to Customers] ?

You're right. [Equity capital] / [Loans to Customers] it is.

Is [Risk Weighted Assets] referred in the above article equal to [Loans to Customers] in the game for this "Simplified Tier 1 Ratio"

So I suppose that a bank's Equity Capital is a consolidated amount of both the bank's Common Stock and Retained Earnings.

Both supposition are correct. In order to simplify the calculation, we may even assume all outstanding loans bear a 100% risk.

[David]

The direct consequence of the wrong formula is that the required shortfall doesn't even cover the ratio

I just ran my test game and saw that the Equity Capital changes over time regardless of whether there is a transfer of fund to the bank.

I think the reason can be:
1) Since this bank Equity Capital figure includes both Common Stock and Retained Earnings, all recurring incomes and expenses of the bank directly affects it. e.g. when it incurs an advertising expense, it decreases the bank's Equity Capital. And when the bank collects loan interests from borrowers, it increases it.

2) If you run your game with Inverse Inflation mode, then the Equity Capital may shrink over time.

In the absence of the above 2 effects, in the example you posted above, the transfer of funds to your bank would have brought the bank capital ratio squarely from 7.95% to 8.00%.

[David]

Are you sure that it is [Loans to Customers] / [Equity capital] ratio, not the other way round [Equity capital] / [Loans to Customers] ?

You're right. [Equity capital] / [Loans to Customers] it is.

Is [Risk Weighted Assets] referred in the above article equal to [Loans to Customers] in the game for this "Simplified Tier 1 Ratio"

So I suppose that a bank's Equity Capital is a consolidated amount of both the bank's Common Stock and Retained Earnings.

Both supposition are correct. In order to simplify the calculation, we may even assume all outstanding loans bear a 100% risk.

Ok. Thanks for your inputs.

I will summarize your suggestion and forward it to the dev team and recommend that they implement it.