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Capital and surplus refer to the financial resources that a bank has available to support its operations and absorb losses. Specifically, it includes:
The bank's Tier 1 and Tier 2 capital, which are calculated according to the risk-based capital standards set by the Office of the Comptroller of the Currency (OCC).
The remaining balance of the bank's allowance for loan and lease losses that is not counted in Tier 2 capital.
These components are reported in the bank's Consolidated Report of Condition and Income, which is a financial statement that provides a snapshot of the bank's financial health.
Table of content
Legal Use & context
Capital and surplus are crucial in the banking sector, particularly in regulatory compliance and financial stability assessments. This term is primarily used in:
Banking law, where it helps determine a bank's ability to meet its obligations and manage risks.
Financial regulations, where agencies evaluate a bank's capital adequacy to ensure it can withstand economic downturns.
Users may manage related forms and documents using resources like US Legal Forms, which provide templates for compliance and reporting.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Here are a couple of examples of how capital and surplus are applied:
A bank with a strong capital and surplus position may be more attractive to investors, as it indicates financial stability.
In a hypothetical example, if a bank faces unexpected loan defaults, its capital and surplus can help absorb the losses, allowing it to continue operations without immediate financial distress.
Relevant laws & statutes
Capital and surplus are governed by various federal regulations, including:
12 CFR Part 1: Investment Securities, which outlines the definitions and requirements for capital and surplus in banks.
12 CFR Part 3: Capital Adequacy Standards, which includes risk-based capital standards set by the OCC.
Comparison with related terms
Term
Definition
Difference
Tier 1 Capital
The core capital of a bank, primarily consisting of common equity.
Tier 1 is a component of capital and surplus, focusing on core financial strength.
Tier 2 Capital
Supplementary capital that supports a bank's financial stability.
Tier 2 is also part of capital and surplus but includes additional forms of capital.
Common misunderstandings
What to do if this term applies to you
If you are involved in banking or finance and need to understand capital and surplus, consider the following steps:
Review your bank's financial statements to assess its capital and surplus position.
Consult with a financial advisor or legal professional for guidance on compliance and regulatory requirements.
Explore US Legal Forms for templates that can assist you in managing related documents and compliance matters.
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