What is Capital?

Capital Requirements
Affect The Whole Economy,
Not Just Banks.

Capital is the difference between the value of a financial institution's assets and its liabilities. It acts as a financial cushion to absorb losses.

capital-image

To illustrate this concept, a family's assets include money in its checking and/or savings accounts as well as their home and perhaps other investments. Liabilities include what the family owes, such as a mortgage or a car loan. As a family manages its finances, it generally is more financially secure and stable when the value of all of its assets exceeds the value of the debt it carries to finance those assets.    

Like in the case of a family, it is important that banks have enough capital so that they can weather stresses and continue to operate. In the case of banks, having enough capital means they can stay healthy and lend to support families, businesses and the broad economy in a broad array of financial conditions. In concert with regulators, the largest U.S. banks have greatly increased both the quality and quantity of their capital over the past two decades; capital at these banks has more than tripled since 2007.