Impaired Capital

AAA

DEFINITION of 'Impaired Capital'

1. When a bank's actual assets are worth less than their stated value. When a bank has impaired capital, this capital can be liquidated if the bank cannot make up the deficiency. State laws define the treatment of a bank with impaired capital.


2. When a company's actual assets are worth less than the stated value of the company's outstanding shares.

INVESTOPEDIA EXPLAINS 'Impaired Capital'

In the case of a bank with impaired capital, one option for making up the deficiency is that the bank's board of directors can choose to levy and collect pro rata assessments on common stock to restore the impaired capital. If stockholders do not pay the assessments within a specified time frame, usually three to four weeks, the bank's board of directors can choose to sell enough of the stockholder's shares to collect the assessment.

RELATED TERMS
  1. Outstanding Shares

    A company's stock currently held by all its shareholders, including ...
  2. Capital

    1) Financial assets or the financial value of assets, such as ...
  3. Asset

    1. A resource with economic value that an individual, corporation ...
  4. Liquidation

    1. When a business or firm is terminated or bankrupt, its assets ...
  5. Book Value

    1. The value at which an asset is carried on a balance sheet. ...
  6. Capital Expenditure (CAPEX)

    Funds used by a company to acquire or upgrade physical assets ...
RELATED FAQS
  1. What information should I look at on a publicly traded company for use in fundamental ...

    In finance, fundamental analysis focuses on estimating a company's value based on the underlying factors that affect its ... Read Full Answer >>
  2. Does location matter for taxes when calculating gross sales?

    Tax policies regarding gross sales differ by state and region. Some city jurisdictions, counties and states require a percentage ... Read Full Answer >>
  3. Why would you use the TTM (trailing twelve months) rather than the data from the ...

    Public companies report their yearly financial statements along with an annual report. However, financial professionals are ... Read Full Answer >>
  4. Why is it important for an investor to understand business accounting?

    Investors use financial statements to obtain valuable information used in valuation and credit analysis of companies. Therefore, ... Read Full Answer >>
  5. What are the business consequences of using FIFO vs. LIFO accounting methods?

    If a company uses a first-in, first-out accounting method (FIFO), it's likely that its reported earnings will be higher than ... Read Full Answer >>
  6. What advantages does EBTIDA-margin have over other profitability ratios?

    The advantages that EBITDA margin has over other profitability ratios is that it measures a company's financial performance ... Read Full Answer >>
Related Articles
  1. 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.
  2. Home & Auto

    From Booms To Bailouts: The Banking Crisis Of The 1980s

    The economic environment of the late 1970s and early 1980s created the perfect storm for a banking crisis.
  3. Savings

    Are Your Bank Deposits Insured?

    Learn how the FDIC is helping to keep your money in your pockets.
  4. Credit & Loans

    What's a Revolving Line of Credit?

    A revolving line of credit is an arrangement made between a company or an individual and a bank to borrow money on a short-term basis.
  5. Savings

    Explaining Checking Accounts

    A checking account is an account at a financial institution, usually a bank, that allows for deposits and withdrawals.
  6. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  7. Economics

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.
  8. Economics

    What is the Cash Ratio?

    The cash ratio is the ratio of a company's total cash and cash equivalents to its current liabilities.
  9. Fundamental Analysis

    Why Last In First Out Is Banned Under IFRS

    We explain why Last-In-First-Out is banned under IFRS
  10. Economics

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.

You May Also Like

Hot Definitions
  1. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
  2. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  3. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  4. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  5. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  6. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
Trading Center