Understanding Bank Capital
Bank capital Bank capital is the difference between a banks assets and its liabilities. It represents the new worth of the bank or its equity values to investors. The asset portion of a banks capital includes its cash, government securities, and interest earning loans (mortgages, letters of credit and inter-bank loans). The liabilities section of a bank's capital includes loan-loss reserves and any debt it owes. A bank's capital can be thought of as the margin to which creditors are covered if the bank would liquidate its assets. Basel I, Basel II and Basel III standards provides a definition of the regulatory bank capital that market and banking regulators closely monitor. A banks capital can be divided or structured into different tiers - with Tier 1 capital the primary indicator of the banks financial health. How does it work? Bank capital indicates the financial health of the bank. If an external force was take a hit on the bank (such as coronavirus of the f...