Capital(Banking) Law and Legal Definition

Accumulated financial strength of an institution is its capital. Assets minus liabilities amount to capital. In measuring capital, assets are liquidated and liabilities are paid off. Financial strength of a bank is the funds invested in the bank. Funds include: stock, securities and earnings. A bank’s financial health depends on its capital/asset ratio. The ratio must be above the prescribed minimum.

Equity capital is the initial funding of a bank. Equity capital is necessary to charter a bank. It is a source of protection to depositor’s investment.