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25

(I worked there for 23 years.) Simon Johnson is correct. Citi (or its predecessors) was insolvent on those 3 occasions, and would have gone into liquidation without the bailouts by U.S. taxpayers.


2

Short answer - banks make loans, and obviously some of these will go wrong. This risk is handled in two separate ways (that are distinct; but obviously not independent of each other). If you had to sum up the distinction in single-sentence bullet points: Provisions try to pre-book expected/likely losses on the current loan book. Capital Adequacy (CAR) ...


1

Provision (or reserve) is based on the expected loss, and so the purpose is to absorbe expected losses. The Capital adequacy (or regulatory capital) is based on RWA and leverage ratio, and set the limit on the total size of the business for a bank. Regulatory capital will also cover unexpected losses, as the expected losses have been recognized by loan ...


1

Our paper answers this question in the admittedly simple context of Expected Loss (EL) calculated as the straightforward summation of EAD * PD * LGD from the granular level. EL here is the surrogate for your RWA, and the risk metrics are the granular data (EAD, PD, LGD). The paper proposes how changes in EL can then be attributed / apportioned to changes ...


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