MANAGEMENT

Detailed explanation-1: -A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital adequacy ratio of equity as a percentage of risk-weighted assets.

Detailed explanation-2: -Banks take on risks and may suffer losses if the risks materialise. To stay safe and protect people’s deposits, banks have to be able to absorb such losses and keep going in good times and bad. That’s what bank capital is used for.

Detailed explanation-3: -The principle of the capital adequacy regulation is based on the fact that the minimum capital should be high enough to absorb the potential losses. While capital acts as a buffer for the bank, in the distressed period, the higher the buffer, the lower the risk of default.

Detailed explanation-4: -Regulatory capital or capital requirement is the amount of capital a bank or other financial institution has to hold as required by its financial regulator.