Bank Capital

What is 'Bank Capital'

The difference between the value of a bank's assets and its liabilities. The bank capital represents the net worth of the bank or its value to investors. The asset portion of a bank's capital includes cash, government securities and interest-earning loans like mortgages, letters of credit and inter-bank loans. The liabilities section of a bank's capital includes loan-loss reserves and any debt it owes.

BREAKING DOWN 'Bank Capital'

A bank's capital can be thought of as the margin to which creditors are covered if a bank liquidates its assets. Loan-loss reserves or loan-loss provisions, are amounts set aside by banks to allow for any loss in the value of the loans they have offered.

RELATED TERMS
  1. Allowance For Bad Debt

    A valuation account used to estimate the portion of a bank's ...
  2. Net Interest Income

    The difference between the revenue that is generated from a bank's ...
  3. Interbank Rate

    The rate of interest charged on short-term loans made between ...
  4. Business Banking

    A company's financial dealings with an institution that provides ...
  5. Appraised Equity Capital

    The excess of the market value of an asset over its book value. ...
  6. Limited Service Bank

    Any type of banking business facility that is located separately ...
Related Articles
  1. Investing Basics

    The Industry Handbook: The Banking Industry

    If there is one industry that has the stigma of being old and boring, it would have to be banking; however, a global trend of deregulation has opened up many new businesses to the banks. Coupling ...
  2. Personal Finance

    The Banking System: Commercial Banking - How Banks Make Money

    ByStephen D. Simpson, CFA As mentioned before, banks basically make money by lending money at rates higher than the cost of the money they lend. More specifically, banks collect interest on ...
  3. Fundamental Analysis

    Analyzing A Bank's Financial Statements

    A careful review of a bank's financial statements can help you identify key factors in a potential investment.
  4. Credit & Loans

    Banking Stress Tests: Would Yours Pass?

    In weaker economic times, banks may be tested by the government to see how safe they are.
  5. Personal Finance

    The Banking System: Commercial Banking - Key Ratios/Factors

    ByStephen D. Simpson, CFA As banks have very different operating structures than regular industrial companies, it stands to reason that investors have a different set of fundamental factors ...
  6. Investing Basics

    Retail Banking Vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking, also known as business banking, refers to the aspect of banking that deals with corporate customers.
  7. Investing

    Why Banks Don't Need Your Money to Make Loans

    Contrary to the story told in most economics textbooks, banks don't need your money to make loans, but they do want it to make those loans more profitable.
  8. Investing Basics

    What is a Bank?

    A bank is a financial institution licensed to receive deposits or issue new securities to the public.
  9. Economics

    Explaining Risk-Weighted Assets

    Risk-weighted assets is a banking term that refers to a method of measuring the risk inherent in a bank’s assets, which is typically its loan portfolio.
  10. Economics

    What is a Loan Loss Provision?

    Banks set aside loan loss provisions to cover losses from bad loans.
RELATED FAQS
  1. What factors are the primary drivers of banks' share prices?

    Find out which factors are most important when determining the share price of banks and other lending institutions in the ... Read Answer >>
  2. What is the average profit margin for a company in the banking sector?

    Learn what the average profit margin is for companies in the banking sector, along with other evaluation metrics often used ... Read Answer >>
  3. Are a bank's current assets counted as liquidity?

    Find out how bank assets are defined and how the Federal Reserve controls the definitions of, requirements for, and availability ... Read Answer >>
  4. What economic indicators are important to consider when investing in the banking ...

    Find out which economic indicators are most useful for investors in the banking sector, especially those influenced by central ... Read Answer >>
  5. How do leverage ratios help to regulate how much banks lend or invest?

    Learn what leverage ratios mean for banks, how regulators restrict leverage, and what impact ratios have on a bank's ability ... Read Answer >>
  6. Do banks have working capital?

    Learn the reasons why banks do not have working capital due to the lack of typical current assets and liabilities accounts, ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center