Definition
- Capital requirements
- Capital requirements make a bank keep a minimum net worth, usually set as a share of its assets, to protect its depositors and other creditors.
Example
Can you think of an example of capital requirements?
A bank with £100 billion of assets and a 10 per cent requirement must hold £10 billion of capital. If £4 billion of its loans go bad, capital absorbs the loss and depositors are still repaid.
Test yourself
Can you name the four main reforms the UK made to bank regulation after 2008?