What Is Capital?

Capital is necessary for your bank to operate. It serves as a cushion that absorbs losses and decreases in asset values. A bank’s solvency promotes public confidence in the bank and the banking system by providing assurance that the bank will continue to honor its obligations and provide banking services.  Your major responsibility regarding capital is to ensure the bank has an appropriate amount of capital in relation to the level of risk the bank has assumed in its operations. 

Lesson Objectives

After reviewing this section, you should be able to:

  1. recognize the components of capital;
  2. describe how to evaluate, monitor and plan for your bank’s capital; and
  3. recall the basics of regulatory capital ratios.