What Are Undisclosed Reserves?

Undisclosed reserves include unpublished or "hidden" reserves that may not appear on public documents—such as on the balance sheet—but are nonetheless 澳洲幸运5开奖号码历史查询:real assets and are considered as such by most banking institutions.♚

澳洲幸运5开奖号码历史查询:Bank reserves are the cash miꦑnimums that financial institutions must keep on hand. The Federal Reserve (Fed) sets the requirements in order to ensure that banks have enough money on hand to cover withdrawals.

Understanding Undisclosed Reserves

Undisclosed reserves relate to capital requirements in the banking industry and are designated as 澳洲幸运5开奖号码历史查询:Tier 2 capital. Tier 2 is designated as the second or supplementary layer of a bank's capital and is less liquid than Tier 1 capital.

Undisclosed reserves are included in Tier 2 capital and will occur through 澳洲幸运5开奖号码历史查询:provisions or when a bank charges expenses against a P&L. These items are not disclosed and not visible on public statements, such as the balance sheet. Tier 2 capital, or supplementary capital, also includes a number of important and legitimate constituents of a bank's🌠 capital re🥃quirement. Five items can typically be included in Tier 2 capital calculations:

• Undisclosed reserves
• 澳洲幸运5开奖号码历史查询:Revaluation reserves
• General 澳洲幸运5开奖号码历史查询:loan-loss reserves
• Hybrid debt-equity capital instruments
• 澳洲幸运5开奖号码历史查询:Subordinated term debt

澳洲幸运5开奖号码历史查询:Tier 1 capital, which is also known as 澳洲幸运5开奖号码历史查询:core capital, is more liquid and consists of equity capital and disclosed reserves (e.g. 澳洲幸运5开奖号码历史查询:retained earnings). Tier 1 capital is the money the bank has on its books while it undertakes lending, investing, t🌟rading, or other risky transactions. Simply put, Tier 1 funds support banks when los🎀ses are absorbed so that business functions do not have to be shut down.

Tier 1 and Tier 2 capital requirements were largely standardized in the Basel I accord, issued by the 澳洲幸运5开奖号码历史查询:Basel Committ🅰ee on Banking Supervision and left untouched by the Basel II accord. National regulators of most countries around the world have implemented Tier 2 standards in local legislation. In the calculation of regulatory capital, Tier 2 is limited to 100% of Tier 1 capital.

Undisclosed Reserves Special Considerations

Preferred or accepted forms of capital and collateral have grown in importance, particularly after the 澳洲幸运5开奖号码历史查询:banking crisis during 2008 and 2009. Bank stress tests, which were conducted in response to numerous taxpayer-funded 澳洲幸运5开奖号码历史查询:bailout programs, highlighted how c🌌ertain assets and reserves were woefully inadequate during the volatile markets of the Great Recession.

In practice, undisclosed reserves are not common but are accepted by some regulators where a bank has made a profit, but the profit has not appeared in normal retained earnings or in general reserves of the bank. It is fairly standard for undisclosed reserves to be accepted by a bank's supervisory authorities. However, many countries do not accept undisclosed reserves as an accounting concept or even as a legitimate form of capital.