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Can anyone who has a real world hands on experiential understanding of the banking system explain to me what exactly bank “capital” is? I’m well aware reserve r
by User23 2y ago
Can anyone who has a real world hands on experiential understanding of the banking system explain to me what exactly bank “capital” is? I’m well aware reserve requirements aren’t a thing anymore and that bank capital is different.
I would find it rather amusing if other banks’ liabilities can somehow be defined as a bank’s capital, because it would mean bank capitalization in aggregate is really just banks expanding their balance sheets. This in turn would suggest that it’s mainly, from an outcomes perspective, about allowing the major banks to dictate to the smaller ones by the former conditionally refusing to expand their own balance sheets to coerce the latter.
- kasey_junk 2y agoBank capital is trivially defined as the difference between assets and liabilities on the balance sheet. What you are probably more curious about is regulatory capital. That unfortunately is very complex. Each regulator will have different formulas for how to calculate that (some of which are informed by state or national law or even international treaty). Regulators generally are pretty hyper focused on contagion risk when it comes to nested balance sheets. Though obviously there are cases where new financial instruments or changed regulatory regimes leave the regulators flat footed (see 2008) it’s reasonably rare in first world western style economies.
- impish9208 2y ago> I’m well aware reserve requirements aren’t a thing anymore Uhh, where did you hear this?
- kasey_junk 2y agoProbably in relation to https://www.federalreserve.gov/monetarypolicy/reservereq.htm https://www.federalreserve.gov/monetarypolicy/reservereq.htm
- impish9208 2y agoAhh, I guess that makes sense. I do want to point out that the reserve requirement ratio is currently at zero does not mean that it’s “not a thing anymore”.