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.

BREAKING DOWN '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.

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RELATED FAQS
  1. How do businesses determine if an asset may be impaired?

    Find out how a business should determine if an asset may be impaired in accordance with the generally accepted accounting ... Read Answer >>
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    Learn what an impaired asset is and how it effects a company's financial statements. Understand how an accountant writes ... Read Answer >>
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    Learn about goodwill, how it's created and how it becomes impaired. Understand how goodwill impairment is recorded on a company's ... Read Answer >>
  4. What are the differences between amortization and impairment?

    Learn the differences between amortization and impairment as they relate to intangible assets held on a company's balance ... Read Answer >>
  5. Why is the value of capital stock important to public shareholders?

    Understand what capital stock is and how it's issued and authorized. Learn why the value of capital stock important to public ... Read Answer >>
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