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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