Answer to Question #266670 in Finance for Paige Connor

Question

Why is capital important to banks

Answer 1

Capital functions as a protection to a bank from all sorts of uninsured and unsecured risks that may ultimately turn into losses. This is where the two principal functions of capital are obtained which are:

• To absorb losses
• To build and maintain confidentiality in a bank. Therefore,capital is required to allow a bank to cover any losses using its own funds.