What is bank capital?
Bank capital is the equity buffer between a bank’s assets and liabilities.
Definition, calculation and mechanism
Loan losses can erode this buffer; deposits are liabilities to customers, not equity. Regulatory capital depends on risk weights and eligible instruments. High capital does not mean a bank faces no risk.
Interpretation, examples and limits
Capital adequacy differs from liquidity: an otherwise solvent bank can face a short-term cash shortage. Asset quality and maturity structure matter as well.
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