what are undisclosed reserves 
undisclosed reserves include unpublished or hidden reserves that may not appear on public documents such as on the balance sheet but are nonetheless real assets and are considered as such by most banking institutions bank reserves are the cash minimums that financial institutions must keep on hand the federal reserve fed sets the requirements in order to ensure that banks have enough money on hand to cover withdrawals understanding undisclosed reservesundisclosed reserves relate to capital requirements in the banking industry and are designated as tier 2 capital tier 2 is designated as the second or supplementary layer of a bank s capital and is less liquid than tier 1 capital undisclosed reserves are included in tier 2 capital and will occur through provisions or when a bank charges expenses against a p l these items are not disclosed and not visible on public statements such as the balance sheet tier 2 capital or supplementary capital also includes a number of important and legitimate constituents of a bank s capital requirement five items can typically be included in tier 2 capital calculations tier 1 capital which is also known as core capital is more liquid and consists of equity capital and disclosed reserves e g retained earnings tier 1 capital is the money the bank has on its books while it undertakes lending investing trading or other risky transactions simply put tier 1 funds support banks when losses are absorbed so that business functions do not have to be shut down tier 1 and tier 2 capital requirements were largely standardized in the basel i accord issued by the basel committee on banking supervision and left untouched by the basel ii accord national regulators of most countries around the world have implemented tier 2 standards in local legislation in the calculation of regulatory capital tier 2 is limited to 100 of tier 1 capital 1 undisclosed reserves special considerationspreferred or accepted forms of capital and collateral have grown in importance particularly after the banking crisis during 2008 and 2009 bank stress tests which were conducted in response to numerous taxpayer funded bailout programs highlighted how certain assets and reserves were woefully inadequate during the volatile markets of the great recession in practice undisclosed reserves are not common but are accepted by some regulators where a bank has made a profit but the profit has not appeared in normal retained earnings or in general reserves of the bank it is fairly standard for undisclosed reserves to be accepted by a bank s supervisory authorities however many countries do not accept undisclosed reserves as an accounting concept or even as a legitimate form of capital 