- - Bank capital is made up of its own sources of asset funding.

That brings us
directly to the nature of money, if we consider it to be something that allows
a bank to cover its liabilities with its assets. As a result, capital volume is an
equivalent of net asset value, reflecting the margin by which assets exceed
liabilities. After both depositors and creditors have been satisfied, bank
owners will be left with assets equaling capital to divide.
- Capital is intended to support a bank from a variety of uninsured and
unsecured risks that could result in losses.
- This is where we get to the two key roles of capital: absorbing losses and
building and maintaining trust in a bank.
- Capital is needed for a bank to be able to cover any losses from its own
assets. A bank's liabilities can be entirely offset by assets as long as its total
losses do not deplete its reserves.
- Any losses incurred decrease a bank's capital, which is offset against its
equity products (share capital, capital funds, profit-generating funds, and
retained earnings), depending on how the bank's general assembly
determines.
- Depositors and bank creditors have to be convinced that their bank deposits
and assets are safe. Thanks to its lossabsorbing capability, bank capital
indicates a bank’s ability to cover its liabilities with assets, thus building and
sustaining its credibility. If capital falls below the law-required level and the
bank fails to do something about the situation, there is a good reason to
revoke its license