This report delves into the realm of global finance, focusing on the critical aspects of risk management within commercial banking and the implementation of capital adequacy regulations. The main body of the report meticulously examines the various sources of risk that commercial banks face, including credit risk, operational risk, market risk, liquidity risk, business risk, reputational risk, and systemic risk. Each risk is defined and explained with real-world examples. The report then provides a comprehensive overview of capital adequacy regulations, explaining their purpose, the formula used to measure capital adequacy, and the different tiers of capital. The rationale behind these regulations is also thoroughly discussed, highlighting their role in preventing excessive leverage, safeguarding against insolvency, and maintaining the stability of the financial system. The report emphasizes the importance of capital adequacy in ensuring the financial soundness of banks and protecting the interests of both depositors and the broader economy.
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