Impaired Capital

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.

RELATED TERMS
  1. Impairment

    1. A reduction in a company's stated capital. 2. The total capital ...
  2. Impaired Credit

    A deterioration in the creditworthiness of an individual or entity. ...
  3. Carrying Value

    An accounting measure of value, where the value of an asset or ...
  4. Deficiency Balance

    The amount owed to a creditor if the sale proceeds from the collateral ...
  5. Asset Deficiency

    A situation where a company's liabilities exceed its assets. ...
  6. Onerous Contract

    A type of contract where the costs involved with fulfilling the ...
Related Articles
  1. Term

    How Is Impairment Loss Calculated?

    Impairment loss is the decrease in an asset’s net carrying value that exceeds the future undisclosed cash flow it should generate.
  2. Economics

    Understanding Impairment

    In finance and accounting, impairment refers to the loss of value of a company’s capital stock.
  3. Stock Analysis

    Ceiling Falls On Exploration And Production Sector

    Exploration and production companies' use of esoteric accounting charges caused a sharp decline in commodity prices.
  4. Bonds & Fixed Income

    Accounting Rules Could Roil The Markets

    FAS 142 is an accounting rule that changes the way companies treat goodwill. Be aware of the impact it has on reported earnings to avoid making bad investment decisions.
  5. 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 ...
  6. Savings

    Assessing Bank Assets: Are Your Savings Safe?

    Learn how to determine if your assets are safe or if your bank has spread itself too thin.
  7. Stock Analysis

    Sell Off at Kroger Overdone

    Kroger's low valuation makes its investment drawbacks less worrisome,
  8. 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.
  9. 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.
  10. Personal Finance

    The Banking System: Commercial Banking - How Banks Are Regulated

    ByStephen D. Simpson, CFA The 2007-2008 mortgage bubble in the United States, and worldwide credit crisis, highlighted why banks are so heavily regulated; with such a key role in the economy, ...
RELATED FAQS
  1. How is impairment loss calculated?

    Learn how companies re-evaluate their assets and compare them against book values to recognize impairment and why this strategy ... Read Answer >>
  2. How do accountants record impaired assets?

    Learn why accountants need to identify and record impaired assets, how impairments are measured and how they impact financial ... Read Answer >>
  3. What are some ways a business owner can reduce unlimited liability?

    Understand how a fixed asset becomes impaired. Learn the accounting practices of impairing a fixed asset, and how it's recognized ... Read Answer >>
  4. When and why does goodwill impairment occur?

    Understand what the goodwill of an asset is and how it's created. Learn how the goodwill of an asset can be impaired and ... Read Answer >>
  5. 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 >>
  6. How does goodwill amortize?

    Learn about the Financial Accounting Standards Board 's (FASB) rules for goodwill amortization, how the rules have changed ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center