Newcastle Proposition

The Newcastle Proposition is a concept in banking that describes how a bank shares its profits with its shareholders based on the level of its profits. It suggests that a bank's profit-sharing policy should be aligned with its risk-taking, meaning if the bank takes on more risk, it should pay higher returns to shareholders. This approach aims to incentivize prudent risk management while rewarding shareholders appropriately. Essentially, it emphasizes that profit distribution should reflect the bank’s risk and performance, fostering a balanced relationship between risk-taking and shareholder interests.