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FIN 46, Consolidation of Variable Interest Entities, was an interpretation of United States Generally Accepted Accounting Principles (U.S. GAAP) published on January 17, 2003 by the U.S. Financial Accounting Standards Board (FASB) [1] that made it more difficult to remove assets and liabilities from a company's balance sheet if the company retained an economic exposure to the assets and ...
The entity does not have enough equity to finance its activities without additional subordinated financial support (e.g., the entity is thinly capitalized) The equity holders, as a group, lack any one of the common characteristics of a controlling financial interest: The power to direct the economic activities of the entity through voting rights
A formal definition is "The Special Purpose Entity is a fenced organization having limited predefined purposes and a legal personality". [ 1 ] Normally a company will transfer assets to the SPE for management or use the SPE to finance a large project thereby achieving a narrow set of goals without putting the entire firm at risk.
Earnings at risk (EaR) and the related cash flow at risk (CFaR) [1] [2] [3] are measures reflecting the potential impact of market risk on the income statement and cash flow statement respectively, and hence the risk to the institution's return on assets and, ultimately, return on equity.
In finance, mainly for financial services firms, economic capital (ecap) is the amount of risk capital, assessed on a realistic basis, which a firm requires to cover the risks that it is running or collecting as a going concern, such as market risk, credit risk, legal risk, and operational risk. It is the amount of money that is needed to ...
[citation needed] equity risk premium (ERP) is the difference between the return on a market portfolio or a stock with average market risk and the risk-free rate of return. From this definition, it is clear that the market average equity return is the expected "threshold" for investors to engage in investment activities in the market, and if ...
The risk premium represents the compensation awarded to the equity holder for taking on a higher risk by investing in equities rather than government bonds. [1] However, the 5% to 8% premium is considered to be an implausibly high difference and the equity premium puzzle refers to the unexplained reasons driving this disparity.
A bank may have substantial sums in off-balance-sheet accounts, and the distinction between these accounts may not seem obvious. For example, when a bank has a customer who deposits $1 million in a regular bank deposit account, the bank has a $1 million liability.