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Bank capital is trivially defined as the difference between assets and liabilities on the balance sheet. What you are probably more curious about is regulatory
by kasey_junk 2y ago
Bank 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.