Primer: Bank Capital — Brian Romanchuk

Summary:
Bank capital is the buffer on a bank’s balance sheet that allows it to absorb losses, particularly credit losses. Although there is a great deal of excitement about bank liquidity — bank runs, just like in “It’s a Wonderful Life”! — but the main danger is the capital buffer being wiped out (insolvency). A bank run might feature at the end of the bank’s lifetime (quite often, regulators just step in), but the trigger is the insolvency. This article discusses bank capital at a high level, from a macroeconomic viewpoint.Bond EconomicsPrimer: Bank CapitalBrian Romanchuk

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