Core capital (common equity)

Pursuant to Section 10 of the German Banking Act (KWG), equity capital that an institution must hold in order to meet its obligations to creditors and to provide security for the assets entrusted to it. At present, it essentially comprises paid-in capital, contributions by silent partners, open reserves, the special item for general banking risks pursuant to Section 340h HGB, and (to a limited extent) hybrid financial products. – As a lesson learned from the financial crisis that followed the subprime crisis, banks in the EU must hold half of their own funds in hard equity (core tier one, common equity), namely common shares and retained earnings, by 2012. The other half can consist of government bonds (it should be clarified: by creditworthy public debtors only), first-class corporate bonds and covered bonds such as Pfandbriefe, in addition to cash. However, because government bonds, even those issued by EMU members, carry a very high risk, a distinction would also have to be made here according to creditworthiness. – See Basel III, capital, capital, hard, capital adequacy, own funds, capital ratio, minimum requirement, hybrid capital, capital, capital conservation buffer, core capital ratio, liquidity buffer, buffer, countercyclical, risk cover, tamping strategy, backing, mandatory convertible bond. – Cf. BaFin Annual Report 2008, p. 49 (quality of core capital; eligibility for recognition by supervisory authorities), BaFin Annual Report 2009, p. 10, p. 48 et seq. (new guidelines; details of composition), BaFin Annual Report 2010, p. 125 (the Capital Adequacy Directive, which has entered into force, determines the eligibility of hybrid capital components for recognition as regulatory own funds at institutions).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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