Meaning
Bank capital is the financial buffer banks maintain to absorb unexpected losses. This crucial cushion ensures stability and solvency, protecting both the institution and its depositors from financial shocks.Components
It primarily comprises equity (like common stock) and retained earnings, along with certain types of debt instruments that can absorb losses.Purpose
The main purpose of bank capital is to safeguard depositors’ funds, prevent bank failures, and maintain public confidence in the banking system.Regulatory Framework
Regulatory bodies, such as those implementing the Basel Accords, set minimum capital requirements. These frameworks aim to strengthen the global banking system and mitigate systemic risk.Author
