Balance sheet capital management

Banks use securitization to improve balance sheet capital management. This provides (i) regulatory capital relief, (ii) economic capital relief, and (iii) diversified sources of capital. As stipulated in the Bank for International... 

Since ratios, like balance sheets, refer to a particiilar point in time, they have a hmited use unless they are compared with previous values. A study of ratio trends indicates whether or not a company is approaching a working-capital or a hquidity crisis and may enable management to compare the performance of the company with that of competitors. 

Chuck Adamson built a new indigo plant at a cost of 2 million to capitalize on the worldwide craze for blue denim. He managed to convince the IRS that the craze would last only two years so that he should be able to depreciate the plant in 2 years by straight line, even though the plant will physically last 15 years. Let s assume the blue denim craze continued strongly into the third year. Will Adamson operate without a plant listed on the balance sheet Will he have no capital depreciation expenses on his product cost Can he undersell any would-be newcomers into the market ... 

In a balance sheet-driven CDO the originating bank is trying to obtain off-balance-sheet treatment for existing assets to which bank capital has been allocated. This enables the originator to manage capital constraints and to improve its return on capital. 

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