discussion

Do you agree or disagree with any of the concepts in post below? Provide information or concepts that may not have been considered.

Capital allocation is another pivotal part of financial management. In the text it was described as the process that enhances a company’s stability financially by distributing financial resources within. This gives financial managers the ability to decide where money can be allocated within the company to different departments that will help push the building forward. In financial institutions over the years they have focused on “regulators to shift towards increasing banks capital levels and introducing more transparency into the Tier 1 capital calculations. Moreover, the postulates of the reduction of procyclicality and promoting counter cyclical buffers introduce new requirements on the usage of available capital” (Mizgier & Pasia. 2016) Financial institutions has inputted these regulators who are there to implement guidelines and guide the financial managers through rules that have been put in place to avoid conflicting situations when they arise.

Overtime with this being implemented there have been some conflicts that have arisen that has helped implement new regulations that have appeared to work within financial institutions. The concept of the way capital allocations is being used agrees with the way it is described within the textbook. Financial institutions calculate capital cost that they currently have and disburses it within the company and externally through loans. Weighted average of cost capital would in this case would correlate with the type and amount of loans being given to the financial institutions to their customers. The financial managers within financial institutions still must weigh the options to ensure that the company continues to drive the value of the capital in a positive direction through the decisions being made through the allocations of capital.