Cooke Ratio
Categories: Banking, Accounting
Imagine graduating with honors from Oxford University for your undergraduate work and your graduate work. Then you get a Doctorate at Oxford as well. You work for the Bank of England for 33 years, advise governments, help direct the Bank of International Settlements, and offer world regulatory insight to large firms like Price Waterhouse. You marry, have four children, and develop a reputation for your appreciation of music, golf, and traveling.
And after this full life, you are best known for...a ratio to determine whether or not a nation has enough capital in relation to the size of its financial system.
That's the life of the great William Peter Cooke, who devised this ratio to determine if a bank can take on losses in the event of a steep economic downturn. The ratio is defined as a percentage of capital compared to its risk-adjusted assets.
During Basel I in 1988, central banks and authorities agreed that the minimum Cooke ratio should be 8%.
Poor guy didn’t even get a statue.