Methods of increasing bank capital effectiveness – part 1

Abstract

One of the goals of every rationally working enterprise, including a bank, is making the most effective use of the capital at its disposal. Bearing in mind that capital becomes a limited resource for banks and at the same time it is not gratuitously obtained, it should be managed in such a way as to ensure its maximum efficiency. A helpful instrument in the process of increasing capital effectiveness is the process of its allocation. However, in order to carry out allocation, first the process of measurement and calculation must be completed. Banks as institutions of public trust are subject to special regulations that force the possession of capital (own funds) at an adequate level. The notion of bank capital is not explicit and is diversely perceived. The definitions quoted in the literature differ from one another, which does not mean at all that they are incorrect. They only present a different point of view or emphasize various capital aspects. In the practice of bank management there are numerous kinds of capital of different significances for business and relations with the environment. This article contains some basic views of bank capital are presented.