Law Commons^™

Psaf, Economic Capital And, James B. Thomson

James Thomson

The 1980 Monetary Control Act requires the Reserve Banks to recover their costs of providing payments services over time, including a normal return on capital – that is, the same after tax return on equity that a private firm would require. To date, this private sector adjustment factor has been estimated and applied as a single hurdle rate for all Reserve Bank payments services. Capital budgeting theory suggests that firms should use a different hurdle rate for each distinct type of activity according to its risks. For Reserve Bank payments services, this might entail estimating separate private sector adjustment factors …