Author: cestmoi

Understanding Capital Adequacy Ratio (CAR) for Deposit-Accepting Banks [Copy link] 中文

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Post time 2006-1-22 10:54:08 |Display all floors
Localities do game the tax rates quite a lot.

Localities always game the real estate tax system through the rate (per thousand of appraised value) or the base (appraised value).  In some states of the USA where the state government is required to help local schools based on the wealth or poverty of a county, then counties will try to lowball the base and gouge the rate.  This causes their ability to pay to sink in the educational assistance formula and causes the tax rate charged to homeowners to be high.  But because the appraisal is low, the annual tax is about what it should be.  A high rate on a small base looks like a county under serious fiscal stress, but it's actually just some hillbillys gaming the state educational assistance formula!

For some of the reasons you cite, apprasial for taxation could be a better measure than some other evaluation.  Since local homeowners always want the appraised values to remain low, while banks have an incentive to inflate their assets, then appraisal for tax purposes would have an advocate in the homeowner for the lower value.   My idea isn't necessarily to permit banks to set their own values for their own properties, since the overvaluing of assets is what caused the savings and loan crisis of the late 1980s.  However, appraisal value (or some percentage of it) is a (theoretically) consistent method for valuing real estate throughout a locality that consistently lags the true market value, because homeowners believe they're getting a deal from local government when they have a low appraisal for tax purposes.  However, if a property is carried on a bank's balance sheet at less than its tax appraisal, then moving it up to that level would increase the accuracy of the balance sheet while not allowing the bank to set its own valuation on the property.  

Finance and regulation are interesting topics.  There's a thread on taxation from the past week around also where I talk some about how to successfully tax the rich and the poor.


[ Last edited by matt605 at 2006-1-21 11:14 PM ]

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Post time 2006-1-23 13:36:07 |Display all floors

CD Reports SoE Management Given Share Approval

See http://www.chinadaily.com.cn/eng ... /content_514560.htm

Non-performing SoE loans are one of the major cause of the substandard CAR ratio of Chinese banks. As the report correctly pointed out, SoE relied on their monopolistic position and their relationship to the government to dominate various sectors of the economies. They are inefficient and ineffective. They have no reason to improve their performance. Why should they?

The Chinese government is now adopting a "carrot-without-stick" approach. Executives are offered shares in the SoE as an incentive for the executives to turn an unprofitable enterprise into a profitable one. The creditor banks likewise should extend their assistance to help these SoE's trade out of troubles, its in the banks' interest.

That said, I think the incentives should be coupled to a "big stick". The government should stop being the creditor of last resort for the SoE's which take up the incentive package. If the SoE's don't show improvement, then the SoE might as well be shut down and the resource and labour be deployed more profitably elsewhere. Improvement is to be measured by a combination of ratios, such as the "earnings before lease, interest and tax" (EBLIT), the debt to asset ratio, the return on investment ratio etc.

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Post time 2006-3-4 09:05:57 |Display all floors

CAR Irrelevant for China's Banks

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