Mechanics of Handling Defaulted Shipping Loans and the Methods of Recovery

Abstract

Regulators worldwide try to ensure that banks and other financial institutions have sufficient capital to keep them strong to protect depositors, but also the rest of the economy, since the failure of a large bank could have negative repercussions on the financial stability of a country. Within today’s globalized economy, this could create an increased systemic risk. In modern times, capital adequacy rules that have existed since the eighteenth century have been codified by the Switzerland based Bank of International Settlements (BIS). Through the years, the Basel Committee has defined the necessary financial ratios relating to the capital of banks versus their assets. It has also set a risk weight on each class of bank’s assets (government bonds, unsecured loans, etc.), and defined the risk type of its capital (first tier, second tier).