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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.