Funding capital
August 7, 2010 · Posted in Funding capital · Comments Off
Capital provides free funds in the sense that the bank does not pay interest on these funds. It is not free in the sense that shareholders require a return on their capital and it should be priced at the bank’s cost-of-equity (COE ). This role may be incorporated into financial planning and reporting though the use of hurdle rates that set minimum required returns or by explicit charges to internal business units for capital allocated to them.